Page 1

July - August, 2016 Issue No.: 04/2016

Eastern Africa Premier Supply Chain Magazine

PROCUREMENT LOGISTICS

&

KSHS. TSHS. USHS. USD.

400.00 8,000.00 12,000.00 5.00

Management

Kenya: East Africa Logistics Outperformer

26

Harnessing supplier insight to spot crises and opportunities

30

Six in Ten Digital Adverts are not seen by Humans

52

How to Manage Your Fleet Management Company


DĂŶƵĨĂĐƚƵƌĞƌƐŽĨKĨĨŝĐĞ&ƵƌŶŝƚƵƌĞ͕<ŝƚĐŚĞŶ ĂďŝŶĞƚƐ͕tĂƌĚƌŽďĞƐĂŶĚ,ŽŵĞWƌŽĚƵĐƚƐ

KĸĐĞ&ƵƌŶŝƚƵƌĞΘ<ŝƚĐŚĞŶƐ

ŽŽƌƐ

tŝŶĚŽǁƐ

ůƵŵŝŶŝƵŵZĂŝů^LJƐƚĞŵ

>ĂŵŝŶĂƚĞĚ&ůŽŽƌWĂŶĞůƐ

ŽŶŐƌĂƚƵůĂƟŽŶƐ^LJŵďŝŽŶ/ŶƚĞƌŶĂƟŽŶĂůĨŽƌĂĐŚŝĞǀŝŶŐϯϱzĞĂƌƐŽĨ ĞdžĐĞůůĞŶĐĞŝŶƚŚĞĂƌĐŚŝƚĞĐƚƵƌĞƉƌĂĐƟĐĞ͘ tĞĂƌĞƉƌŽƵĚƚŽďĞĂƐƐŽĐŝĂƚĞĚǁŝƚŚLJŽƵ͘

&/8%

(DVW$IULFD

6XSHUEUDQGV 

<ĞŶLJĂŶDĂĚĞ &ƵƌŶŝƚƵƌĞ

dĞů͗ϬϮϬϯϯϭϱϭϭϬͲϯͮ&Ădž͗ϬϮϬϯϯϭϱϭϭϰDŽď͗ϬϳϭϯϮϯϱϱϱϵͬϲϯ


Editor’s note PUBLISHER Proc & Logistix Consult P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 (0)204404488/(0)2044002479 info@procurementandlogisticsonline.com www.procurementandlogisticsonline.com OFFICE: View Park Towers 13th Floor wing A Suite 1

Procurement & Logistics Magazine @ LogisticsProc CHIEF EDITOR Okumu S. Biko ASSOCIATE EDITOR Anthony Kiganda PRODUCTION ART DIRECTOR Nicholas Amanya PRODUCTION DIRECTOR Ken Okore SENIOR ILLUSTRATOR Nicholas Amanya AUDIENCE DEVELOPMENT MANAGER Emily Martin AD SERVICES MANAGER Ken Okore EDITORIAL OFFICES Proc & Logistix Consult P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 0204404488/02044002479 info@procurementandlogisticsonline.com www.procurementandlogisticsonline.com ADVERTISING For information on advertising in future issues of the magazine, please contact: KEN OKORE +254 702 799210 OKUMU STEVE BIKO +254 721 986284 SANDRA DINGA +254 713 199012 E-MAIL: adverts@procurementandlogisticsonline.com SUBSCRIBER CUSTOMER SERVICE Procument & Logistics Management Magazine is a six times publication a year and circulated to professionals in the Supply Chain industry, members of relevant associations, government bodies and other personnel in the procurement, logistics and finance industries as well as suppliers in Eastern Africa. The editor welcomes articles and photographs for consideration. Material may not be reproduced without prior permission from the publisher. DISCLAIMER: The publisher does not accept responsibility for the accuracy or authenticity of advertisements or contributions contained in the journal. Views expressed by contributors are not necessarily those of the publisher. © All rights reserved. No part of this publication may be copied or reproduced without prior permission from the publisher.

How E-Procurement improves overall company performance E-Procurement provides cost savings plus improved company performance

T

raditionally the role of the purchasing manager has focused on cost containment, which makes sense since spending on purchased goods and services can represent up to 70% of a company’s cost of doing business. However, the opportunities for the role of the procurement manager are much greater than simply saving money – having a broader view of procurement can contribute much more to the overall health and growth of an organization. Many articles on E-Procurement have focused on cost savings as the primary benefit of an automated procurement process. A Google search on “E-Procurement cost savings” returns almost 1.2 million results, with most using similar phraseology in defining the benefit of E-Procurement as “improved cost savings”. Focusing on cost savings alone misses many of the other advantages that an E-Procurement platform can provide an organization. When companies think beyond just a transactional role for procurement, they can make better decisions at a faster pace that will ultimately increase a company’s overall business performance. E-Procurement increases productivity through efficient record-keeping and real-time snapshots of your purchasing process. Traditionally, manual systems have operated on manual data entry from hardcopy documents. This method is tremendously time-consuming and redundant for employees across all departments within the procurement process. According to Forrester, the accounting departments of most companies spend more than 25% of their time resolving errors (such as invoices that do not refer to a PO or misalignment on the quantity and/or the price). With an easy-to-use automated purchasing software program, a company can keep all current and historical records up-to-date at all times. This allows managers to assess company performance instantly and make faster decisions that subsequently provide more accuracy throughout the sourcing and invoicing process.


CONTENTS COVER STORY 42 Kenya: East Africa Logistics Outperformer BMI highlights Kenya as the logistics outperformer in East Africa when compared to Tanzania, with the country benefitting from a more developed port sector and stronger transport links than its neighbour. Kenya and Tanzania both offer companies entry and exit points into the East Africa Community (EAC) and other hinterland states and so are set to compete with one another in the logistics sphere. Kenya is taking the lead and has been picked by the EAC as the regional hub for its autos trade. Auto companies are already making inroads into Kenya, with India carmaker Tata choosing the country as its entry point to the region.

BRIEFS 4. 5. 5. 6. 7. 8. 9. 10. 10. 11. 11. 12. 12. 13.

2

UK equips Entebbe International Airport with terror detecting machinery Egerton University in deal with state ministry to start maritime training institute Bolloré Logistics unveil new brand name. Tanzania begins production of own helicopters Posta Kenya launches new mail delivery system Ethiopian Airlines first in Africa to receive Airbus A350XWB Kenya ranked second best logistics hub in Africa after SA What’s more important than growth and customer relationships? Purchasers failing to pass on supplier insights to wider business The supply chain week in numbers Better responses to online feedback could add £3.2bn to the economy Purchasers failing to pass on supplier insights to wider business Internal Audit Role reversal: Apple drags down suppliers

15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

14. Leading businesses see procurement as a value, not a function 14. Djibouti Port to Support China’s Africa Push 15. The search for procurement catalysts is on 16. Total buys oil logistics assets in East Africa 16. Total mulls GAPCO buy 17. Grant funding offered to East African logistics entrepreneurs 18. Somaliland project opens up Africa for DP World 20. Kenya, Ethiopia to Forge Stronger Ties 21. Dar es Salaam gets set for $16m logistics grant 22. TMEA issues Rwf 6 billion to boost logistics in East Africa 23. Crescent eyes Africa with stake in Mara 24. KENYA- Access to Government Procurement Opportunities

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


INSIGHT 26 28

30

32 34 36

38 41 47

Harnessing supplier insight to spot crises and opportunities On the front foot: Procurement’s response to economic fears Six in Ten Digital Adverts are not seen by Humans, So Where is the Value in Digital Marketing? Aligning procurement to get more from your marketing spend The Digital disconnect Up to 60% of global marketing budgets being wasted every single year CMOs should embrace procurement A Look at Bonded Warehousing Siginon Roots Growing in Africa

26 28 32 30 47

38

PRODUCT 47

NelsonHall Launches NEAT Vendor Evaluation & Assessment Tool for Procurement BPO Services

MANAGEMENT 52 48 51 52

Managing a fleet Big Company Supplier Squeeze – a Disturbing Trend Continues How to Manage Your Fleet Management Company

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

3


BRIEFS

UK equips Entebbe International Airport with terror detecting machinery By Dinga

Entebbe International Airport The Uganda Civil Aviation Authority has heightened security at Entebbe International Airport after acquiring assorted aviation security equipment from the United Kingdom government. The authority’s Managing Director, Dr. Rama Makuza said they want to strengthen security at the airport in a bid to mitigate against the threat of international terrorism, adding that the new equipment will ensure that flights that land and takeoff from Uganda airports are secure and safe. “This is a significant milestone in the excellent relationship between the Government and Peoples of United Kingdom,”said Makuza. The UK delivered 75 big X ray trays, 35 small X ray trays, 2 stand test pieces for x-ray machines, 1 walk through metal detector test piece and one hand held metal detector among other equipment. The UK in 2005 launched aviation strategies in Uganda including an aerial and ground survey that was conducted by a joint team from Scotland Yard Metropolitan Police and the Royal Air Force Regiment. The team came up with an action plan that formed the back bone of Uganda’s Man -Portable Air Defense Systems (MANPADS) threat mitigating programme. Makuza commended the UK Joint Counter Terrorism Training and Advisory Team for the MANPADS training sessions in 2005, together with a follow up visit by team from the Regional

4

“We appreciate the kind donation to Entebbe International Airport of two explosive trace detection systems, their accessories, consumables and regular service. We are also grateful to the British High Commissioner Alison Blackburne who handed over to us donation of X-ray screening point trays,” Makuza said. Aviation Security Liaison Office. “We appreciate the kind donation to Entebbe International Airport of two explosive trace detection systems, their accessories, consumables and regular service. We are also grateful to the British High Commissioner Alison Blackburne who handed over to us donation of X-ray screening point trays,” Makuza said. According to Makuza, the UK donated Counter Terrorism Training Kits, material and equipment together with aviation security training courses fully sponsored by the UK government. Those that would benefit from the training courses include security management team, supervisors, crisis managers, instructors, risk managers, inspectors and screeners. Besides the donation, the UK government also conducted security audits and inspections at Entebbe International Airport.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


BRIEFS

Egerton University in deal with state ministry to start maritime training institute By Dinga “We are looking into practicing Mariculture, given the maritime culture within us and the large piece of land we own in Mpeketoni, Lamu County would be an added advantage,” Egerton University vice chancellor Professor Rose Mwonya said.

Kenya’s maritime sector is set to receive a major uplift with the newly announced collaboration between The Shipping and Maritime Affairs Department and Egerton University. The deal will see Egerton set up a maritime research and training facility in partnership with the ministry. “We are looking into practicing Mariculture, given the maritime culture within us and the large piece of land we own in Mpeketoni, Lamu County would be an added advantage,” Egerton University vice chancellor Professor Rose Mwonya said. She made the remarks during an event at the university’s main campus where Shipping and Maritime principal secretary Nancy Karigithu had joined staff and students for a sensitisation programme. The university would be collaborating with the State department to create job opportunities espe-

Bolloré Logistics unveil new brand name Bolloré Africa Logistics Kenya Limited has announced it will merge its logistics business into one global entity that will see the firm change its brand name from Bolloré Africa Logistics Kenya Limited to Bolloré Transport & Logistics Kenya Limited. The changes will take effect from July 1 with the firm also planning to invest Sh2.2 billion ( 20 million) to create a new logistics hub in Nairobi as part of its expansion efforts. This will be the second time the firm changes its brand name in four years. The Paris based firm, which initially launched its operations in Kenya as SDV Transami, shocked the market when it abruptly dropped the established brand for its parent company’s name in November 2012. “As part of this global realignment, our company in Kenya will legally change its name from Bolloré Africa Logistics Kenya Limited to Bolloré Transport & Logistics Kenya Limited. We will use this name in all administrative matters relating to

cially for university students in offshore oil and gas drilling as well as major projects in infrastructure. Prof Mwonya said the university is willing to provide human capital due to the potential in the maritime sector. “We offer various programmes in the faculties of agriculture, engineering, environment, science, arts, health and social sciences,” said Prof Mwonya. Mrs Karigithu commended the choice Egerton had made in coming up with strategies for the development of the sector as a key driver of the national economy. The institution aims at capacity building and making students ambassadors of the fast expanding industry. She said while marine and fisheries sectors have expanded to have a big impact on the economy, a lot more still remained to be explored to boost growth once resources were put together. The partnership comes in the wake of increased off-shore exploration of gas and drilling for oil in Lamu together with development of the Lamu Port South Sudan Ethiopia Transport (Lapsset) corridor all of which will require huge logistics and manpower capacity.The initiative will create 15,000 job opportunities which will increase over time

the Kenyan company,” Jason Reynard, Bolloré Transport & Logistics CEO East Africa Region, said. All the transport and logistics businesses of the Bolloré Group will be merged under a single global brand, Bolloré Transport & Logistics. Mr Reynard said they aim at ensuring unity within the firms operations and more global market exposure. “We are anticipating client needs and developing management and operational tools adapted to SMEs and industrial companies, linking our Kenyan businesses to the world.” “We currently run the Mombasa Container Terminal freight station which has been in existence for 12 years. We also run the East African Commercial & Shipping and Socopao, where our agencies represent many shipping lines that call at Mombasa port,” Mr Reynard said. According to Mr Reynard, Bolloré Africa is also looking at opportunities in the railway and energy sectors where the firm buys petroleum products from international traders and distributes them. Mr Reynard however said Bolloré Railways is not operational in Kenya but they are keen on monitoring the standard gauge railway developments. Bolloré invests over Sh200 million in the growth of the Kenyan business annually and Sh68.8 billion globally as they seek to become the top brand in the global logistics arena by the year 2025 5

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

5


BRIEFS

Tanzania begins production of own helicopters

Tanzania has started manufacturing its own choppers with the first batch scheduled to take to the skies in 2018 Tanzania has started manufacturing its own choppers with the first batch scheduled to take to the skies in 2018. The country’s first prototype model two-seater aircraft is already in its final stages of production and is expected to start flying trials once it is given the greenlight by the Tanzania Civil Aviation Authority. Arusha Technical College mechanical engineering department initiated the flagship project so as to build affordable choppers for Tanzanians to ease the country’s transport woes. Engineer Abdi Mjema, the man behind the ATC chopper project said they are complementing the industrialization policy by President Magufuli which is pioneering the first locally made helicopters that will be available to ordinary residents at affordable prices. The fully- fledged factory produces various forms of machinery, including a prototype motor vehicle and a number of industrial engines. Initiated two months ago with the aim of using the chopper for surveillance, rescue and agricultural purposes, the programme has since but reframed to transport people. The pioneer aircraft has a chassis and air-

6

frame ready, and uses a gasoline-powered VW flat engine board. The motors are manufactured by German automobile company Volkswagen and are similar to the ones used to make the ‘Robinson’ helicopters in the United States. The aircraft the craft will be unveiled in three weeks’ time. “Once approval from the aviation authority, we will finish up mounting of the main rotor which is the most critical part of the chopper”, said the engineer. Arusha will set history as the first northern region to fly the first-ever Tanzanian manufactured helicopter in July 2016. The Prototype ATC helicopter has a flying ceiling of 400 feet for starters, taking into consideration that Arusha is already at a higher altitude. The flying height is however set to increase with more accomplished models. The college is moving from being an ordinary college of technical, engineering and technological training towards becoming a fully-fledged factory, which will deal in vehicle and heavy machinery repair and manufacturing. The institution can roll out up to 20 such helicopters in annually once the project gets a nod from higher authorities.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


BRIEFS

Posta Kenya launches new mail delivery system The Postal Corporation of Kenya (PCK) has launched a new mail delivery platform dubbed MPOST with an aim to reach new customers and double revenue base. It is now possible to use your mobile phone number as a virtual post office box, to receive mail and parcels anywhere in the country. The latest move by the state agency is an attempt to claw back lost market share by introducing new products. Postmaster General and CEO Dr.Enock Kinara assured youth involved in Startup tech companies that they have a listening partner in PCK. “It is targeted at the young generation, who do not wish to own a physical post office box, but still receive a lot of letters and packages,” said Mr Kinara during the launch. This is among the new initiatives the Postal Corporation is hoping will revive its operations making it vibrant, competitive and ultimately profitable. The new product will enable customers use their mobile numbers as their post office box address. Customers will receive alerts on their mobile phone upon sending or receiving letters or package from any of its 623 postal outlets countrywide. “So far 20,000 customers had signed by between April and June this year and today one thousand more signed,” Mr Kinara said.

“It is targeted at the young generation, who do not wish to own a physical post office box, but still receive a lot of letters and packages,” said Mr Kinara during the launch Customers will only spend Sh300 annually for the virtual post office box as opposed to Sh2, 300 paid by owners of physical mail boxes. Posta enjoyed a monopoly for years, but failed to adapt to changing technology that ultimately saw it lose business. Apart from technology, PCK is also betting on the entry into the transport business to turnaround its fortunes. The entry into passenger business will help the organization to subsidize its courier operations. The Cabinet Secretary Ministry Of ICT Joe Mucheru acknowledged the tremendous effort that PCK is making with its entry into emerging digital markets. “Postal Corporation of Kenya is on the right path in placing priorities in digital innovations as it adjusts to changing markets,” said the CS..

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

7


BRIEFS

“This is a testimony of our commitment to give our passengers the very best travel experience, with the latest industry products and services.” Ethiopian Airlines, the fastest growing and largest airline in Africa is the only second airline in the Star Alliance network after Singapore Airline to take delivery of Airbus A350XWB in Toulouse, France. Airbus is deemed as the most advanced and fuel-efficient aircraft in the industry today. The A350 XWB provides exceptional levels of comfort and reliability applying the latest technology for a totally unique passenger experience. Ethiopian Airlines in statement said it is proud to be the first airline from Africa to take delivery of the A350, a move that will see the airline offer its passengers the ultimate travel experience ahead of other carriers. “Ethiopian is also pleased to make all Africans proud by being the first airline in the world to fly this ultra-modern airplane in the African skies”, said the statement.

8

Ethiopian Airlines first in Africa to receive Airbus A350XWB Ethiopian A350 XWB was specially designed for passenger comfort and well-being with wider seats in both Business and Economy classes, the lowest twin engine noise level, advanced air conditioning technology and its full LED mood lighting enhance the comfort while reducing fatigue after a long flight. All seats are fitted with the latest high-definition touchscreen personal monitors and a higher selection of movies, television series and audio channels. Inflight Wi-Fi connection will be made available on this aircraft in the future. Passengers with smart devices can connect to the world while others can use the smart individual touch screens on their seats when the internet service goes operational. Group CEO of Ethiopian, Tewolde Gebremariam hailed the airline for their consistent role in pioneering African aviation and making Africa First in Aviation Technology. “This is a testimony of our commitment to give our passengers the very best travel experience, with the latest industry products and services.”

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

The A350XWB’s innovative technology improves performance in operation. Its revolutionary airframe and simplified systems have optimized fuel burn, maintenance costs and reliability, and its engines have the lowest carbon dioxide CO2 emissions of any in the wide body category. Ethiopian has ordered 14 Airbus A350XWB aircraft and will continue receiving the remaining 13 soon constantly raising number of Airbus aircraft in the fleet ensuring the extra comfort. In its seven decades of operations, Ethiopian has become one of the continent’s leading carriers, unrivalled in efficiency and operational success. Ethiopian Airlines is currently implementing a 15-year strategic plan called Vision 2025 that will see it become the leading aviation group in Africa with seven business centers: Ethiopian Domestic and Regional Airline; Ethiopian International Passenger Airline; Ethiopian Cargo; Ethiopian MRO; Ethiopian Aviation Academy; Ethiopian Inflight Catering Services; and Ethiopian Ground Service..


BRIEFS

Kenya ranked second best logistics hub in Africa after SA

Kenya’s logistics sector has been named the second best in the continent after South Africa according to a World Bank survey. The Logistic Performance Index (LPI) released by the bank ranks Kenya at position 42 globally with an average score of 3.33; South Africa took position 20 in the global survey with a score of 3.78. Kenya’s performance has been attributed to continued removal of administrative controls and improved infrastructure which pay dividends. According to the LPI the country has greatly improved trade flow and reduced the cost of doing business for importers and exporters. The survey ranks Uganda and Tanzania at positions 58 and 61 respectively, with Uganda’s average score being 3.04 and Tanzania 2.99 points. The LPI is based on data collected from more than 1,200 professionals from 160 countries and it rates performance from one (worst) to five (best). “Efficient logistics connects firms to domestic and international markets through reliable supply chain networks”, the World Bank says in a report. The bank acknowledges that supply chains may be complex and an impediment in integrat-

Kenya’s logistics sector has been named the second best in the continent after South Africa according to a World Bank survey.

ing and competing in global value chains but insists their performance is largely dependent on country characteristics. Kenya’s improved performance in the transport sector is set to lift the country’s external trade profile. Being a seaport state, the country has faced competition from Tanzania, Eritrea and Djibouti which are all eying landlocked countries in the region. The number of police checks in the Northern Corridor have dropped as well as weighbridges which are now four, down from six. The LPI says rapid improvements can be achieved regionally if countries have a strong political will and align their efforts to implementing administrative reform. Kenya recently automated the issuance of the certificate of origin in addition to Mariakani weighbridge automation to cut on time used in clearance and to curb corruption.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

9


BRIEFS

What’s more important than growth and customer relationships?

Purchasers failing to pass on supplier insights to wider business

Guy Strafford

A majority of procurement professionals do not use information from their suppliers to inform the business about what’s going on in the market.

With lawmakers insisting that companies make the statement available via a prominent link on their homepage, it’s clear that inaction is simply not an option

M

ove over business growth and customer relationships; if slavery isn’t on your boardroom agenda you’re not only missing a trick, but you could be falling foul of the law. The Modern Slavery Act 2015, which aims to stamp out modern slavery, forced labour and human trafficking in the supply chain, has serious implications for vast swathes of business. Around 12,000 organisations in the UK across a variety of sectors are predicted to be affected. But with change comes opportunity – the opportunity to beef up best practice among procurement partners and tick a very large customer box in the process. The new legislation will force companies turning over at least £36m to publish an annual statement explaining the steps they have taken to ensure that they haven’t broken any of the rules detailed in the legislation (more on the steps that companies can take in my next blog post). Needless to say, the implications of not complying with the Modern Slavery Act are certainly not to be sniffed at; ranging from injunctive proceedings or even being barred from public contract work. These are all great motivators, but it is stakeholder pressure that is likely to be the biggest catalyst to action; the reputational risk of non-compliance is very real. In fact, our own research finds that a staggering 74% of consumers say they would stop spending money with companies they heard were associated with questionable supplier practices and one in five suggested they would be willing to share details on social media. Can UK businesses afford the risk of being publicly named and shamed? The government too is threatening to name and shame those falling short of the rules and if the backlash from those outed for non-compliance with the minimum wage is anything to go by, that’s one list you certainly don’t want to be on. With lawmakers insisting that companies make the statement available via a prominent link on their homepage, it’s clear that inaction is simply not an option. With much of the groundwork for statements sitting with procurement departments, the benefits of robust supplier management are once again illustrated. The time for action is now.

10

A

poll of 40 senior procurement executives by Proxima found although more than half – 57.6 per cent – do ask their vendors for insight into the market, some 81.2 per cent do not include these findings in reports or dashboards to share with the business to inform decisions. Guy Strafford, chief client officer at the procurement outsourcing business, said: “This statistic suggests there is perhaps a slight disconnect between information being collected from suppliers and insight that business leaders need to make strategic decisions. If the procurement team is unable to bridge the two, this insight is often, unfortunately, kept within the procurement department, leaving the rest of the business to their own devices. This often leads to divisional leaders looking externally for the same information.” The media was the most common source of market insight, for 65.3 per cent of respondents. Commodity pricing came second with 61 per cent, and currency volatility was third with 57.6 per cent. Some 8.8 per cent use the Purchasing Managers’ Indices as their most important source of gauging market sentiment. And 7.6 per cent of those polled admitted they did not track the market at all, with more than a quarter citing a lack of resources, including money and people, as the reason. “Less mature procurement functions, defined by their size, scope of influence and heavy focus on savings, will often struggle to connect deeper supplier insights back into other business activities. As a result, these functions (not for lack of want) cannot achieve wider benefits such as supplier-led innovation, more flexible terms and p faster responsiveness to demands,” Strafford added.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


BRIEFS

The supply chain week in numbers 2025 The year in which Elon Musk, the founder of Space X and Tesla, predicts people will start to colonise Mars, laying the foundation for a spacefaring civilisation. The South African entrepreneur hopes to send his first mission to the Red Planet in 2018. 155,000 The saving made on the Spanish royal household’s 7.7m budget in 2015. In a bid to restore the monarchy’s popularity, King Felipe has opened the royal accounts to external auditors. The 48-year-old monarch, who replaced his father Juan Carlos I, who abdicated in 2014, has also cut his salary by 20% to £174,000. 5 The number of London model agencies that are being investigated by the Competition and Markets Authority for operating as a cartel to fix prices. The agencies concerned are: FM Models, Models One, Premier, Storm and Viva. The Association of Model Agents has been named as party to the infringement for acting as a “vehicle for price co-ordination.” If the watchdog finds the agencies guilty it can impose fines of up to 10% of turnover. Model One is the biggest agency in Europe, representing everyone from Twiggy to Yasmine Le Bon, while Storm, backed by Sir Richard Branson, has acted for Kate Moss. 51% The percentage of profits new low cost, long haul airline POP (People Over Profit) has promised to donate to social causes in the UK and India. The company, which will fly non-stop from the UK to Amritsar and Ahmedabad, has just embarked on a crowd funding exercise to raise £5m.

90 The number of Chinese automotive brands, three times as many as America. Although vehicle sales have picked up after the government halved the sales tax on cars, analysts say the country’s automotive industry has too many brands and too much capacity. £6.55 The average weekly pocket money for a British child, according to a survey by Halifax Building Society. Up 35p on the 2015 figure, pocket money has now reached its highest level for nine years. Intriguingly, the survey reveals that there is a gender gap even here: boys typically get £6.93 a week and girls £6.16. £400,000,000 The turnover of Romanian supermarket chain Profi which has just been put up for sale by Polish investment fund Enterprise Investors. Acquired by the fund in 2009 for around £45m, Profi has expanded from 60 stores to 400 and has the widest coverage of any supermarket chain in Romania.

Better responses to online feedback could add £3.2bn to the economy Online feedback could have a revolutionary effect on the UK’s hospitality sector, letting it contribute a further £3.2bn to the economy, a report by Barclays has claimed. Improvements in how the sector manages and responds to online feedback could enable restaurants to better cater to demand and could generate £2bn within the sector and a further £1.2bn for the supply chain. Barclays Feedback Economy surveyed more than 2,000 customers and 541 businesses to assess the impact of review sites on consumer behaviour and the industry. Putting processes in place to manage customer feedback better would create a more responsive sector, attracting more overseas tourists and encouraging domestic visitors to stay longer and spend more. “These faster, easier and simpler feedback mechanisms are a good thing for the industry – resulting in more agile businesses better able to serve the evolving needs of consumers,” said Mike Saul, head of hospitality and leisure at Barclays. The report said 59 per cent of UK consumers responded that reading other people’s reviews played an important role in helping them decide where to visit or stay. Amongst 25-34 year olds the figure rises to 70 per cent. In the hospitality industry, 82 per cent of respondents say that feedback has been beneficial for their business, while 68 per cent think it has been beneficial for the sector as a whole. Benefits from online feedback include more repeat business (63 per cent) or the identification of issues within the business (61 per cent), respondents said..

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

11


BRIEFS

Purchasers failing to pass on supplier insights to wider business A majority of procurement professionals do not use information from their suppliers to inform the business about what’s going on in the market

A

poll of 40 senior procurement executives by Proxima found although more than half – 57.6 per cent – do ask their vendors for insight into the market, some 81.2 per cent do not include these findings in reports or dashboards to share with the business to inform decisions. Guy Strafford, chief client officer at the procurement outsourcing business, said: “This statistic suggests there is perhaps a slight disconnect between information being collected from suppliers and insight that business leaders need to make strategic decisions. If the procurement team is unable to bridge the two, this insight is often, unfortunately, kept within the procurement department, leaving the rest of the business to their own devices. This often leads to divisional leaders looking externally for the same information.” The media was the most common source of market insight, for 65.3 per cent of respondents. Commodity pricing came second with 61 per cent, and currency volatility was third with 57.6 per cent. Some 8.8 per cent use the Purchasing Managers’ Indices as their most important source of gauging market sentiment. And 7.6 per cent of those polled admitted they did not track the market at all, with more than a quarter citing a lack of resources, including money and people, as the reason. “Less mature procurement functions, defined by their size, scope of influence and heavy focus on savings, will often struggle to connect deeper supplier insights back into other business activities. As a result, these functions (not for lack of want) cannot achieve wider benefits such as supplier-led innovap tion, more flexible terms and faster responsiveness to demands,” Strafford added.

12

There has been a “flood” of tenders for audit services from FTSE 100 firms this year, as companies prepare for new regulations to come into force

E

Y said it anticipated 24 tenders for audit services by the UK’s biggest public firms in 2015, with “virtually all” resulting in a change of provider. The advisory – one of the ‘big four’ audit firms – said the publication of a consultation by the Financial Reporting Council into EU regulation of the audit market and Competition and Markets Authority proposals was a “wakeup call” for firms to put their own procurement strategies in place. In 2013 the then-Competition Commission proposed FTSE 350 companies must put auditing out to tender every 10 years. The Competition and Markets Authority postponed finalising this change to the audit market to assess the impact of the EU directive. The directive also imposed a 10-year maximum term and said those companies that have provided audit services for 20 years or more would not be allowed to enter into a new engagement with the same firm. The EU legislation also blocks auditors from providing a number of other services, such as tax, consultancy and advisory, to the firm it is auditing. “The new regulations are going to impact the procurement strategies of a wide range of professional services, not just the audit,” said Hywel Ball, head of audit at EY. “UK plcs will need to make strategic decisions about which professional services they wish to receive: when, where and from whom. Many services will have to be provided by firms other than the incumbent or future auditor.” Ball added: “Now that the regulators are on the home straight, time is running out for anyone who thinks they can start planning for these changes some other time.” Research by Proxima, published in December 2014, found 85 FTSE 350 companies had switched auditor since 2011, compared with 40 in the decade prior to that. In June Barclays appointed KPMG as its auditor, replacing PwC which had been the bank’s auditor since 1896. The FRC published guidance in 2013, Audit Tenders, Notes on best p practice, to assist companies with the procurement process.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


BRIEFS

Role reversal:

Apple drags down suppliers

Quite often, we use this blog to discuss the increased reliance companies have on their global network of suppliers – the notion of corporate virtualization - and the importance of carefully managing suppliers and understanding their behavior and ethics. We have seen and written about many circumstances in which a supplier-related failure or business behavior has impacted a company’s reputation or bottom line. In many ways, company and supplier have become one, with the lines between the two increasingly blurred.

We were reminded of this again this week, though in a bit of an unusual way. News broke earlier this week that Apple had missed its lofty expectation for iPhone sales following a disappointing quarter, at least by analysts’ standards. When publicly traded companies of Apple’s prominence miss expectations, it’s big news and the stock price usually takes a sizeable hit - and it did. However, shortly after the initial news broke, reports emerged that many of Apple’s suppliers were also taking a hit. Cirrus Logic, Apple’s microchip supplier, slumped 7%. NXP Semiconductors dropped 5% while SkyWorks Solutions suffered a 6% setback. Typically here at Proxima, we concern ourselves with the performance of corporations, helping them to manage their supplier base in an effort to maximize shareholder value. And usually, we’re talking about how the anonymous far-flung supplier can drag down the corporation. That said, it was hard not to notice the immediate trickle-down effect Apple’s poor sales numbers – relatively speaking, of course – had on its supplier base. It serves as another reminder that in this era of corporate virtualization, supplier and company are inextricably intertwined. That road is clearly a twoway street.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

13


BRIEFS

Leading businesses see procurement as a value, not a function

It’s not often that a story about new supply chain management software becomes a feature in a publication as respected as The Wall Street Journal. For that to happen, the deployment of said software has to represent something much more significant or herald a trend of highly compelling proportions. This month, the news from manufacturing specialist Flextronics fits that bill. According to the WSJ, the provider of parts to the likes of Apple, Microsoft, Ford and many more has designed and rolled out a new software program that allows for greater control of the company’s 14,000 global suppliers. Here’s the unique part – the software actually decentralizes the supplier management process and puts data and critical information into the hands of local managers across the globe so they can make appropriate decisions as it relates to the company’s supplier base. Essentially, the company is offering visibility of supply chain data across the company so decisions can be made quickly region-by-region, especially in the aftermath of an unexpected event. We have consistently talked about the importance of providing key decision makers in the organization with a holistic view of supplier information. This is exactly what Flextronics has done. Anyone in the company no matter where they are in the world can access information about suppliers and inventories. They can even see live video feeds of production facilities. Flextronics, a supplier themselves, has taken a leadership position in supplier management. The company clearly understands the importance of ensuring that the right suppliers are in place to deliver on the needs of the business. But they also recognize how crucial it is to be able to audit, manage and monitor supplier activity both for the purpose of reducing costs but also to flag any ethical or behavioral issues that might arise. And instead of holding that information among a key few, they are empowering a wide swath of employees to participate in the process. This move by Flextronics highlights that progressive leaders crave the stuff that connects their business with the supply market in real-time, and empowers their people. They are less interested in funneling work through a single function, and more interested in embedding best-practice into the fabric of their business. They see procurement as something that should be done ubiquitously and consistently across their business - a cultural trait, a core value and a way of working. Not kept locked in your back office..

14

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

Djibouti Port to Support China’s Africa Push China is eyeing the small but strategically located nation of Djibouti as a springboard to strengthen commercial ties with Africa, including breakbulk cargo shipping, through its Belt and Road overseas trade initiative. A liquefied natural gas or LNG terminal, a wharf for livestock carriers and a 2-square-kilometer development incorporating a trade logistics park and exportable goods processing zone will be built by 2020 in or near the Djibouti port and free trade zone by state-owned China Merchants Group, according to recent state media reports. China Merchants is a port, logistics and financing conglomerate that bought 23 percent of the Port of Djibouti in 2012. It also owns port stakes in Hong Kong, Shenzhen, Ningbo, Shanghai and other Chinese cities. And its overseas investments include ports in Turkey and Nigeria. The company is building warehouses at Sri Lanka’s Port of Colombo, state media recently reported, and plans to spend US$152 million this year to develop a trade and logistics park in Minsk, Belarus. The Djibouti project, the cost of which was not announced, would complement China’s infrastructure construction projects in countries across Africa, from railways to hydropower plants, and its effort to expand trade with the 20-nation Common Market for Eastern and Southern Africa. At a mid-June forum in Shanghai, China Merchants General Manager Hu Jianhua called Djibouti a strategic East African country for his and other Chinese companies that are expanding in the region, and a port at the southern end of the Red Sea with the potential to become a regional shipping center. Djibouti government officials at the forum signed a port development agreement with officials from China Merchants and northern China’s Port of Dalian. A recent China Merchants financial report said the firm boosted its Djibouti t investments by 15 percent last year.


BRIEFS

The search for procurement catalysts is on

F

or some time, we have been talking about the opportunities for procurement and supply chain specialists to assume larger, more significant roles within their organizations. These opportunities have emerged as the supply chain has become more complex and companies grow more reliant on suppliers to fulfil their respective business promises. It’s always nice to see validation of our perspective on these issues, and that is precisely what we got from The Wall Street Journal’s recent coverage of the Gartner Supply Chain Executive Summit in Phoenix. According to the article and the themes that emerged from the conference, today’s global organization is looking for procurement and supply chain specialists who have the ability to manage the complex, diverse and multi-faceted nature of today’s typical supply chain. Cisco’s Senior Vice President of Supply Chain Operations underscored this need when he said, “the supply chain industry is undergoing one of the most massive talent shifts we have ever seen.” Further, Peter O’Brien, Head of the Global Supply Chain Practice of Russell Reynolds Associates said the most prominent example of this was the appointment of Apple’s Tim Cook to the CEO role. Cook was previously the Chief Operating Officer at Apple Inc. where he oversaw the company’s extended supplier network – further evidence of the growing respect for procurement from the C-suite. But at the same time, the Journal further reports that these same companies are facing significant

challenges as they attempt to fill a talent void among their supply chain and procurement teams. They are struggling to find individuals with the ability to manage global teams or the training and technological skills to embrace and leverage data collection systems, all of which can ultimately maximize the value that procurement can deliver. The latter part is not surprising. Procurement professionals have traditionally been responsible for negotiating contracts with suppliers and other roles that could be defined as administrative in nature. So it might be too much to expect traditional practitioners to possess the desired and required skills overnight. But a process is clearly underway, and The Wall Street Journal’s coverage of these issues reinforces the notion that today’s successful companies, and their senior executives, are taking a long, serious look at their supply chain management operations and are placing more importance on them than ever before.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

15


BRIEFS

Total buys oil logistics assets in east Africa

F

rench oil major Total SA said it has bought oil logistics terminals and gas stations in east Africa as part of a strategy to diversify as pumping oil and gas from the ground has become less profitable. Total said it bought Gulf Africa Petroleum Corp.’s assets in Kenya, Uganda and Tanzania for an undisclosed amount. The main assets acquired by Total are terminals in Mombasa and Dar es Salaam and a network of 100 gas stations. In an environment of falling crude prices, the profit margins tend to be greater in businesses such as oil refining, oil distribution and petrochemicals manufacturing, collectively known as downstream. Over the past two years, Total has managed to mitigate the impact of the oil price collapse on its bottom line thanks to rising profitability in its downstream activities. Source: MarketWatch

Total mulls GAPCO buy Dar es Salaam — A leading retailer of petroleum products in Africa, Total is expanding on the continent with the acquisition of Gulf Africa Petroleum Corporation’s (GAPCO) assets in Kenya Uganda and Tanzania. The transaction is subject to the authorities’ approval in the three countries. A communiqué issued by the company of which this paper has a copy reveals that the principal assets being acquired are two logistical terminals in Mombasa, Kenya and Dar es Salaam, Tanzania as well as retail network of around one hundred service stations. “The acquisition of these assets, which are complementary to Total’s existing operations in Kenya, Uganda and Tanzania will strengthen Total’s logistics in the region and significantly accelerate the growth of our service station network, particularly in Tanzania, while leveraging the Total brand,” part of the communiqué emphasizes. Momar Nguer, President, Total Marketing & Services commented that this acquisition id in line with Total’s growth strategy for the distribution petroleum products and services in Africa, which aims at expanding in fast-growing regions while maintaining high profitability. “These assets which complement our activities in East Africa will help us fully leverage synergies of size and build the most competitive integrated regional supply, logistics and marketing base,” Nguer said. Total is the leading petroleum product retailer in Africa with a network of more than 4,000 service stations. The company aims to grow its market share from 17% in 2015 to more than 20%. Total Marketing & Services develops and markets products primarily derived from crude

16

oil, along with all of the associated services. With 32,000 employees in 150 countries, Total Marketing & Services serves more than 4 million customers daily throughout its network of over 15,500 service stations. As the world’s fourth largest distributor of lubricants and the leading distributor of petroleum products in Africa, Total Marketing & Services operates 50 production sites worldwide where it manufactures the lubricants, bitumen, additives, special fuels and fluids that sustain its growth. Created in 1969, Total Tanzania is a wholly owned affiliate of Total with a workforce of 85. Total Tanzania is active across the marketing chain, with a retail network of 32 service stations and lubricant, aviation fuel and general retail businesses. It has an estimated market share of 10%. Gulf Africa Petroleum Corporation is a holding company incorporated in Mauritius with affiliates in Kenya, Uganda and Tanzania. It is jointly owned by Reliance Exploration & Production DMCC and a minority shareholder, Fortune Oil Corporation, Mauritius.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


BRIEFS

Grant funding offered to East African logistics entrepreneurs The Logistics Innovation for Trade (LIFT) Challenge Fund, which supports innovators and entrepreneurs in the logistics and transport sector, has announced a second round, looking to provide grants of up to US$1 million to winning proposals. The LIFT fund accepts applications from innovators globally whose project ideas will be implemented in the East African Community (EAC). The inaugural round saw nine projects awarded funding. The initiative is that of TradeMark East Africa (TMEA), and is managed by Nathan Associates

through a fund management team based in Nairobi, with funding support from the United Kingdom (UK) Department for International Development (DFID). LIFT is seeking innovative approaches to tackling freight and transport costs in East Africa, which reportedly has the highest freight and transport costs in the world. Cost are more than 50 per cent higher than in the United States (US) and Europe per kilometre. “It is our hope that the entrepreneurs and innovators of the East African Community in partnership with their counterparts internationally will drive forward development through the adoption or introduction of ‘best practice’ technologies in the transport and logistics sector, enabling local businesses to compete favourably in the increasingly global economy,” said TMEA chief executive officer (CEO) Frank Matsaert. “LIFT is a valuable financial instrument that supports private sector ‘can-do’ to develop and test new ideas that should reduce the cost and time of transport and logistics in the EAC. TMEA is essentially co-investing with the private sector in projects that are ke w seen as being too risky to undertake without external sponsorship or support.”

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

17


BRIEFS

A local artist puts a welcome garland on DP World chairman Sultan bin Sulayem during his arrival at the presidential palace Hargeisa City Somaliland. Pawan Singh

Somaliland project opens up Africa for DP World BERBERA, SOMALILAND // The ports operator DP World is bullish on Africa and will expand further across the continent following a deal to create a new gateway in Somaliland, on its eastern coast. “I am very bullish about Africa and I believe it still has a very huge potential,” the DP World chairman Sultan bin Sulayem told The National during his first trip to Somaliland last week. “The reason why we go to Africa is because we get a lot of knowledge and experience and they are the two factors for success.” This month DP World signed a US$442 million agreement with the government of Somalil-

18

“Diridhaba is big and the government has plans, we are hoping that we will be allocated a space for our logistics park an industrial zone there.”

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


BRIEFS and to develop and operate a regional trade and logistics hub at the Port of Berbera. The project, which will be phased in, will also involve the setting up of a free zone. The agreement comes as part of a larger government-to-government memorandum of understanding between the Dubai and the government of the Republic of Somaliland to further strengthen their strategic ties. The minister of foreign affairs and international cooperation of Somaliland Saad Ali Shire, said that the agreement is scheduled to finalise by July. “This agreement is opening a new chapter to gaining foreign investment by Somaliland. This deal should enhance job opportunities to youth of the country,” said the minister. DP World operates in Senegal, Egypt, Mozambique, Djibouti and Algeria, employing more than 3,600 people. In the past three to five years, the company said, DP World has spent over $1 billion in capex and added 2,275,000 twenty foot equivalent units (TEU) of capacity at its terminals in Africa, bringing the total annual capacity to 6.2 million TEU. Berbera port would be the eighth DP world operation in Africa when completed. According to Mr bin Sulayem, Berbera port will become a hub and sea route for the Ethiopian market primarily, which is one of the world’s fastest-growing economies and is in need of improved infrastructure and facilities to keep up with the rate of expansion. “I requested a meeting last year with the prime minister of Ethiopia because they had made an announcement for big expansion plans,” Mr bin Sulayem said. “When I met him he explained to me that they are a large population, they are underdeveloped and they have started a development programme to improve the lives of their people.” Investment in this natural deep-

water port will attract more shipping lines to east Africa and its modernisation will act as a catalyst for the growth of the country and the region’s economy, Mr bin Sulayem said. He said that scaling up operations in Berbera port will not only complement DP World’s services in the Doraleh terminal in Djibouti – a key facility for regional trade – but also support growth at its flagship Jebel Ali port in Dubai. Last year, Ethiopia’s economy expanded by 10.2 per cent, but is now set to slow to a rate of 4.5 per cent this year because of the impact of drought. However, the outlook for Ethiopia’s economic growth for the next four to five years is favourable, with expansion averaging above 7 per cent, according to IMF forecasts. “Growth in Ethiopia has been underpinned by investment in infrastructure,” Natznet Tesfay, the director of Africa Analysis at London-based IHS told The National. According to Bashe Omar, head of the Somaliland trade office in Dubai, the investment is planned in two phases. The first will involve $230m, with $62m for the development of the old Berbera port, renewing and reinforcing its infrastructure and $170m for the development of a new container terminal. “Once the port is working at a 75 per cent efficiency, the remaining $170m will be invested in to the development of the port quay,” Mr Omar said. The investment agreement includes the placement of gantry cranes, tug boats and high-tech container storage machinery. The port historically served as a naval and missile base for the Somali central government, and in the 1970s it was developed and managed by the Soviets before being turned over in the 1980s for US military use.

The port has been a major link for Somalia and the Horn of Africa to the world, according to the Berbera port general manager Ali Mohammed Omar. “In 1992 there was a famine in Somalia when the Berbera port was shut down because of the war. That’s why the starvation and famine was very strong and killed many people. It is a key port to us,” he said. A railway line between Djibouti and Ethiopia was launched at the end of 2015, establishing a key transport infrastructure line and better access. The government-to-government agreement includes building a road between Berbera port and the city of Wachaale, on the Ethiopian border, dedicated to transport shipments directly from Berbera to the Ethiopian market, Mr Bashe Omar said. While DP World will be involved in the port and free zone projects, agencies within the UAE Government will handle the road construction, Mr bin Sulayem explained. “We will seek their help because Somaliland is eligible for foreign aid from the UAE,” he said. “Today there are 500 trucks leaving every day from the port on to the road. If you take an average of 400 trucks a day in one year that’s 146,000 trucks leaving the port and if you add trucks coming in to the port, that’s almost 300,000 going in and out so definitely the road will add a lot of value,” he added. The Ethiopian government is now developing Diridhaba, a new logistics and industrial hub in the north-eastern quadrant of the country. This could represent a new opportunity for DP World, says Mr bin Sulayem. “Diridhaba is big and the government has plans, we are hoping that we will be allocated a space for our logistics p park an industrial zone there.”

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

19


BRIEFS

Kenya, Ethiopia to Forge Stronger Ties

President Uhuru Kenyatta with Prime Minister of Ethiopia Hailemariam Desalegn Kenya and Ethiopia today agreed to strengthen the strategic alliance that has existed between them for decades. The strong alliance between the two countries was reaffirmed today when President Uhuru Kenyatta hosted Ethiopian Prime Minister Hailemariam Desalegn at State House, Nairobi. The two leaders witnessed the signing of bilateral agreements including a pact on the oil pipeline that will run from Lamu to Addis Ababa under the LAPSSET project. They also celebrated the successes being made on cross-border security through a Joint Borders Administrators Framework, which they set up last year to deal with anti-peace elements along the common borders. The brotherly relations between Kenya and Ethiopia are expected to be strengthened through a pact on closer cooperation in sports that will also see a Kenya-Ethiopia Marathon, which on its own is bound to become a world attraction. The bilateral meeting between the two leaders and their delegation was marked by camaraderie with the two Heads of State

20

referring to each other as ‘brother’. The Ethiopian Prime Minister, who was accompanied by several Cabinet Ministers, said Kenya is a second home for Ethiopians. The meeting was attended by Deputy President William Ruto, Cabinet Secretaries and Principal Secretaries. President Kenyatta said Ethiopia was an invaluable partner for Kenya in issues ranging from the economy to regional peace building. “Ethiopia continues to be a crucial partner to Kenya whose close cooperation on a wide range of critical issues is deeply valued and spans decades,” said President Kenyatta when he addressed a joint press conference. The President said Ethiopia is working closely with Kenya on the LAPSSET project. “I thank His Excellency for his continued good will to these projects which promise to bring our people together, while opening up greater opportunities to them,” said President Kenyatta Ethiopia and Kenya continue to work closely together on matters of security in the wider region and also along their common borders. “Under our Joint Border Administrators Framework, we’ve seen a lot of success in improving security along the border that we share,” said President Kenyatta. “We are both committed to actualizing the provisions of a sustainable peace agreement we signed last year, which will reduce the vulnerabilities faced by border communities.”

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


BRIEFS

Dar es Salaam gets set for $16m logistics grant

The Logistics Innovation for Trade Challenge Fund grantbased financial mechanism, supports innovators with ideas for products or services that can reduce the costs of transport and logistics in E.Africa. DAR ES SALAAM, TANZANIA - The second round of Challenge Fund support for innovators and entrepreneurs working in the logistics and transport sector was launched recently with a financing mechanism in the range of $16m. The Logistics Innovation for Trade (LIFT) Challenge Fund, which is a $16 million (Tsh.35.2 billion) grant-based financial mechanism, supports innovators with good ideas for products or services that can reduce the costs of transport and logistics in East Africa. According to TradeMark East Africa (TMEA) which is a non-profit organization, LIFT will provide grants ranging from $ 150,000 to $ 1,000,000 (Tsh.330 million to Tsh.2.2billion respectively) to winning proposals from innovators from across the world whose project ideas will be implemented in the East African Community (EAC). East Africa is reported to have the highest freight and transport costs in the world. It is said that the freight costs are over 50% higher than those of the United States and Europe per kilometre.

Successful LIFT projects will contribute to TMEA’s objective of reducing transport time along the main East Africa transport corridors by 15% by the end of 2016. Dr. Josephat Kweka, Country Director Tanzania, TMEA said it was their hope that the entrepreneurs and innovators of the EAC in partnership with their counterparts internationally will drive forward development through the adoption or introduction of ‘best practice’ technologies in the transport and logistics sector, enabling local businesses to compete favorably in the increasingly global economy. “LIFT is a valuable financial instrument that supports private sector ‘can-do’ to develop and test new ideas that should reduce the cost and time of transport and logistics in the EAC and TMEA is essentially co-investing with the private sector in projects that are seen as being too risky to undertake without external sponsorship or support,” Dr. Kweka said. LIFT Challenge Fund Manager Mr. David Mitchell emphasized the impact of the challenge fund to local entrepreneurs saying that the Challenge Fund instruments fill a significant gap in the financial support needs of private businesses and the innovators that drive business activity to greater results and efficiencies. “This is achieved while mitigating the risks of high-return projects that mainstream banking and financial institutions tend to avoid supporting due to the uncertainties of the business proposition or a bank’s own lack of experience in the sector,” Mitchell said. The LIFT Challenge Fund is open to businesses and individuals throughout the world that are either presently operating or intend to be based in the EAC.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

21


BRIEFS

Participants follow a presentation about LIFT Fund Aims

TMEA issues Rwf 6 billion to boost logistics in East Africa

T

radeMark East Africa (TMEA) has launched a Fund worth Rwf 6 billion (USD 7.6 million) to support business with innovative projects that will enhance the transport and logistics sector in East Africa. This is the second edition of the Fund dubbed the Logistics Innovation for Trade Challenge Fund (LIFT). It was first established in in 2012, with nine projects funded to the tune of USD 10.9 million. According to Anataria Karimba from TMEA-Rwanda, this is a chance for private businesses to get financing for their ideas that will reduce transport costs and boost trade in the region. “This is an opportunity that all private sector firms should jump at. All it requires is innovative ideas that can facilitate lower costs in transport and logistics,” Karimba told The New Times. The LIFT Fund aims to reduce investment risk in transformative technologies that will make a difference to the region’s trade and logistics efficiency. To benefit from the Fund, companies in logistics are required to submit their proposals with each successful project legible for grants between $150,000 and $1 million. The companies will also be required to match at least 50 per cent of project value. While speaking to The New Times, Karimba called on Rwandan businesses to submit their applications. Her call was motivated by the fact that during the first round, no Rwandan business benefited from the fund.

22

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

Of the nine successful projects, four were from Kenya, three from Uganda and two from Tanzania. “I think one of the biggest challenges is the lack of awareness that such funds exist. This is someone putting in money to de-risk your business. The private sector in Rwanda is yet to understand that such facilities exist,” Karimba said. David Mitchell, LIFT Fund manager, said: “It’s an open invitation for entrepreneurs here to say, ‘I’ve got a project. Can I work in partnership with people, to develop that project so that it becomes more competitive?’” William Mwiseneza, the operations manager at Spedag one of the largest logistics companies in Rwanda said that it was high time local entrepreneurs and businesses to jump on such opportunities. “We need to be more proactive because we are a landlocked country. We need to look at 10 years to come. Kenya and Uganda are going crazy about these projects because they know that logistics is the future,” he said.


BRIEFS

Crescent eyes Africa with stake in Mara “The African continent boasts enormous potential for growth over the next decade, particularly in the technology sector,” said Badr Jafar, the chief executive of Crescent Enterprises Crescent Enterprises will flex its muscles into Africa’s growing e-commerce sector by investing in Dubai’s Mara Group. The Sharjah-based firm’s investment arm, Crescent Investments, will support Mara Shopping and Mara Xpress covering mobile and technology platforms, with distribution scheduled to roll out to countries on the continent in the next four years. Investment details were not disclosed. Mara Shopping will bring an online marketplace showcasing global brands to sell locally to African residents, as well as bringing African brands to the region. Mara Xpress will be the logistics arm that

Badr Jafar, the chief executive of Crescent Enterprises, right, and Ashish Thakkar, the founder of Mara Group. will bridge the gap between e-commerce and shipping. A stake in Mara’s assets will help Crescent connect with people across Africa and the Middle East through e-commerce, m-commerce and last-mile logistics. “The African continent boasts enormous potential for growth over the next decade, particularly in the technology sector,” said Badr Jafar, the chief executive of Crescent Enterprises. The continent’s telecommunications industry is the fastest growing in the world, covering more than half of the population up from less than 1 per cent 16 years ago, according to mobile operator Virgin. E-commerce is projected to rise to US$75 billion by 2025 from the current $1bn. “Mara’s tech vertical offers a complete end-to-end customer experience through Mara Shopping and Mara Xpress. We will also follow a different approach from current players in the market as Africa’s first two-way marketplace,” said Ashish Thakkar, the founder of Mara Group. p.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

23


BRIEFS

KENYA- Access to Government Procurement Opportunities

The Public Procurement Directorate under the Ministry of Finance is in charge of the Access to Government Procurement Opportunities (AGPO) initiative which was launched 2012. The initiative is to enable youths (35 years and below), women and people with disability access 30% of Government Tenders. The aim of the AGPO Program is to facilitate the youth, women and persons with disability-owned enterprises to be able to participate in government procurement. This will be made possible through the implementation of the Presidential Directive that 30% of government procurement opportunities be set aside specifically for these enterprises. It is affirmative action aimed at empowering youth, women and persons with disability-owned enterprises by giving them more opportunities to do business with Government.

24

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


BRIEFS

Target Groups The Public Procurement and Disposal (Preference and Reservations) Regulations, 2011, shall apply to procurements by public entities when soliciting tenders from the following target groups: • Disadvantaged Groups (Youth, Women, and Persons with Disability) • Small Enterprises • Micro Enterprises • Citizen Contractors • Local Contractors • Citizen Contractors in Joint-venture or Sub-contracting arrangements with foreign suppliers.

2013 Amendments According to the The Public Procurement and Disposal Preference and Reservations Amendment Regulations, 2013 1. A procuring entity shall allocate at least thirty percent of its procurement spend for the purposes procuring goods, works and services from micro and small enterprises owned by youth, women and persons with disability. 2. For the purpose of implementing paragraph (I), a procuring entity shall implement the requirement through its budgets, procurement plans, tender notices, contract awards and submit quarterly reports to the Authority.

Qualification for preference and reservations schemes For the purpose of benefiting from preference and reservations schemes,an enterprise owned by youth, women or persons with disabilities shall be a legal entity that: 1. Is registered with the relevant government body; 2. and has at least seventy percent membership of youth, women or persons with disabilities and the leadership shall be one hundred percent youth,women and persons with disability, respectively. The government has designated desks at all Huduma Centers to facilitate registration OR through g online registration www. agpo.go.ke e

The professional Supply Chain practitioners Consulting Excellence The Consulting Excellence framework drives our behaviour and resonates throughout our values. The core of the framework sits within 3 pillars, or headings: ethical behaviour; client service and value; and professional development.

We specialize in: 1 Organizing training workshops for procurement, logistics, professionals and stake holders. 2 Team building of user departments. 3 Purchase of national and international tender documents on behalf of suppliers. 4 Formulation of tender documents and advertisements. 5 Organizing bid bonds and tender security for suppliers. 6 Developing training material for institutional development. Proc & Logistix Consult P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 0204404488/02044002479 projects@procurementandlogisticsonline.com www.procurementandlogisticsonline.com

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

25


INSIGHT

Harnessing supplier insight to spot crises and opportunities

I

f like the rest of the world, you’ve been keeping a close eye on the movement in the market over the past week or so, from the sudden slump, to the rapid recovery, you may have found yourself asking the same questions being asked by nervous boards the world over. Why did no-one see it coming? Where were the warnings? Where were the indicators? And how could executives be expected to pre-empt a dip that even the “experts” failed to spot? Well, and perhaps worryingly, you’re not alone. This is not the first time economists have failed to spot an upsetting development in the market. Tim Harford, economist and journalist, in his recent article discusses that leading economists have an astonishing record of complete failure when it comes to predicting even the biggest movements in the market, such as recessions. He goes on to highlight how even professional organisations were unable to spot the signs of trouble before the last recession. “Predictions from multinational organisations such as the IMF and the Organisation for Economic Co-operation and Development have remained very similar to the private sector consensus – similarly bad, that is.” However, as always the tell-tale signs were there – a seemingly out-of-character Purchasing Managers Index (PMI) score being just one of many. A quick glance at the PMI, released just a few days prior to what has now been dubbed “Black Monday”, yields a headline warning that “U.S. manufacturers signal the slowest improvement in business conditions for 22 months”. And while the PMI, now seen as the leading economic indicator for manufacturing and nonmanufacturing businesses, serves as a broad stroke indicator to measure market sentiment – recent events raise two questions. Firstly, are businesses even monitoring this indicator at all? And secondly, is the PMI on its own enough to gauge market sentiment? My opinion, and the answer to both of these questions is, no.

26

Where were the warnings? Where were the indicators? And how could executives be expected to preempt a dip that even the “experts” failed to spot? Well, and perhaps worryingly, you’re not alone So what else is needed in the executive’s toolkit to prevent being caught off-guard again? You might be surprised to hear that the solution to this complex task of monitoring, and even predicting turbulence in the market, is already at your disposal. Did you know that there is a network of market agents,that wrap around your business, willing to share information, trends and warnings around sales, growth, commodity prices, demand, currency volatility, research and development, and many other factors that could indicate trouble on the horizon? Did you know that there are companies with a vested interest in your specific market, which could provide insight into the world outside of your business, and feed it back. The truth is, all businesses have access to this network, it’s called their suppliers; they just need to better understand it and connect it into their day-to-day operations.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


INSIGHT

Harnessing insight from the supply base to monitor market sentiment Many of you have already seen our Corporate Virtualisation research indicating that the average company now spends up to 70% of revenues with third parties. Further, it also highlights just how fundamental suppliers are to modern businesses – in terms of revenue growth, innovation, and competitive advantage. As externalisation continues, and businesses increasingly rely on, and invest in their supplier network, it stands to reason that this area of increasing expenditure should be one where businesses look to extract maximum value. Contrary to popular belief, it’s building col-

laborative and productive supplier relationships that drives value, not savings. And, while many procurement teams are already focussed on creating collaborative supplier relationships allowing them to tap into innovations in the supply base; for these relationships to be truly lucrative, there needs to be a further effort to share knowledge, insight and warnings around the wider market. Collaborating with suppliers to monitor market sentiment could be as easy as sharing information on fluctuating commodity prices, demand, sales, growth, or any other factors that could indicate ripples on the horizon. Finally, it seems as though

a new approach to monitoring market sentiment is one that has been a long-time coming. After all if the events of the past week or so have taught us anything, it’s that what Tim Harford highlighted back in 2014 still rings true; that the old approach has been consistently unreliable up to now. “There is not a lot of point asking an economist to tell you what will happen to the economy next year – nobody knows”. With this in mind, we recently undertook a study to understand how effective procurement and supplier management functions are in monitoring market sentiment using the knowledge and insight from their supplier base; and if fluctuations in the supply market are being collated and used as a tool by both procurement and the wider business to spot potential risks, and opportunities in the market. We will g the results in the combe posting ing weeks..

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

27


INSIGHT

On the front foot:

Procurement’s response to economic fears

F

or many businesses around the world, it has become suddenly apparent how close the connections between European / US and Asian economies are - with the suddenly tumultuous Chinese economy having a global impact. An impact that will no doubt continue to swing wildly over the coming weeks, even months. The Chinese government devalued its economy last week for the third time this month. Global markets that were already battling against the gusts from the Chinese market were hit full force with an economic storm. In London, almost £74bn was wiped off the value of the FTSE 100 index, while the US stock market suffered its biggest sell-off in four years. There were also reports released of a significant slowdown in manufacturing within China with deterioration in the sector leading to the worst levels since March 2009. Despite the Chinese government’s attempt to intervene, with one panicked policy after another, the butterfly effect of this critical market destabilising has already been felt in Europe and the US. Whilst the world appears to be in panic mode at the moment, there is a major opportunity for procurement to connect with the executive board around the topic of supplier management.

28

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


INSIGHT What does the market activity in China have to do with procurement? As a glass-half-full person, I believe that the Chinese market shakeup offers procurement a great opportunity to start engaging with the business on topics beyond the traditional stereotype of savings. Here’s how: • Risk and resilience: Two critical board issues that have now landed squarely in procurement’s court. Whilst you may know which of your tier one suppliers are at risk, do you really know how many of your tier three and beyond suppliers are? Further, do you know the impact that problems with these suppliers will have on your business, or your other suppliers’ businesses? How easily can you find a new local supplier

Whilst the world appears to be in panic mode at the moment, there is a major opportunity for procurement to connect with the executive board around the topic of supplier management.

before your competitors, or before your customers become unhappy? Monitoring and contingency planning: Effective monitoring and contingency planning that looks at the entire supply network feeding into your business is a necessity for businesses, both in turbulent markets and on a day-to-day basis. The annual financial health check is no longer enough, businesses need a finger on the pulse of their supply base to gauge individual performance and collectively gain a view of market sentiment. If businesses were closely monitoring sentiment amongst all suppliers in China, could they have foreseen a crash coming? Business performance: In a time of crisis, the ability to drive greater efficiencies, better innovation, increased productivity and improved responsiveness

from your suppliers is more beneficial for overall business performance, than a short term cost reduction. Those companies who cut costs now, are likely to find it more difficult to scale upward when the market stabilises. We’ve seen a conscious effort by both procurement and business leaders to develop procurement beyond the traditional reputation of that of “the savings guys”. But, given the events of the past few weeks, we should expect there will be several conversations around “bolstering the bottom-line” as nervous boards seek the security of cash. For the moment, the best thing to do is to get on the front foot. At the time of writing, there are already reports suggesting that markets are bouncing back, and that the effects may not be as bad as first feared. But this should serve as a stark warning to global businesses, and in turn their procurement functions that business is now done in a global economy, and requires a global perspective. Procurement teams should be seeking to understand how their business is spending money, so that if there is a sudden need for a cash injection, if a market crash calls for contracts to be reworked or even if service levels need to be amended – they are on top of this. Procurement should be engaging with the wider business, finding out what the real challenges are likely to be in the event of any further economic turbulence and preparing strategies to mitigate these. It should be building strategies to help the organisation it serves become the investment vehicle of choice for worried investors looking to put their investments somewhere safe. In the meantime we suggest that procurement teams keep a close eye on the markets and plan some (probably long overdue) reviews of tier two and beyond supy pliers around the world..

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

29


INSIGHT

Six in Ten Digital Adverts are not seen by Humans, So Where is the Value in Digital Marketing?

D

igital may be the fastest growing channel, with spend on digital marketing set to consume around 50% of total advertising budgets in the UK, but how much of that investment is reaching the right audience? With up to 35% of all web activity fraudulent or artificial and 54% of online ads not even seen by a human – the truth is that between 40% to 60% of global digital spend is potentially wasted. This is no longer simply an issue for marketing – CEOs and CFOs are becoming increasingly concerned by the lack of business transparency regarding the commercial impact of digital marketing. From wasted investment to the risk associated with brand damage, digital has fast moved from high impact to high risk. From creating business relevant marketing priorities and metrics to achieving transparent agency activity, this article outlines the role procurement can play in facilitating a best practice approach that will enable companies to attain control over digital expenditure to drive down risk and, critically, realise tangible value. Face the Facts The secret is out – up to 60% of digital marketing spend is wasted and, as a result, failing to deliver the promised ROI. From bots to viewability, fraud to simple confusion, in the worst case just 40% of digital investment is reaching its target. So what next for marketers – most of whom have enjoyed a good decade of digital excitement, enticing the CFO and CEO with promises of unprecedented

30

measurability? As the business increasingly wakes up not only to the lack of digital ROI but also the on-going disconnect between digital activity and business objectives, it is clearly time for new thinking. One of the biggest problems facing marketing is, ironically, a lack of digital transparency. Despite digital’s promise of delivering unprecedented measurability, the truth is that significant money is being wasted due to poor transparency of both day-to-day activities and the actual contribution made by digital marketing to wider business objectives. Much of this wasted investment occurs across the diverse number of specialist agencies, brokers and intermediaries that have been commissioned by companies unsure how to progress against a backdrop of media fragmentation and huge shifts in connectivity, attitude and behavioural changes. This reliance has been important to sup-

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

port the development of new digital strategies. However, the combination of a lack of in-house digital expertise and confidence, especially with traditionally trained marketers, and the rise in the use of automated targeting and ad buying methods, such as programmatic buying tools, has created a lack of transparency in digital investment that is beginning to seriously damage the credibility of marketing.

Time for Change This is not just about money; with opaque campaign metrics and a lack of control, especially in a multi-agency model, companies are also incurring longer term risks, including damage to both brand and share price. Marketers need to change their approach – but when agencies are the first port of call for advice and guidance, how will any company gain that essential independent view into the state of the market? Right now, agencies are attaining massive digital profits and leaving their clients bearing the burden of risk. This model can only change if marketers begin to take a more savvy approach to digital marketing – and that requires an mediator that can sit between a business and the agency, broker and media buyer to level the playing field. However, while strong negotiation is critical, simply using blunt, unsophisticated procurement techniques to push down costs and leave agencies with


INSIGHT

limited profit opportunities will not work. It will not improve the reputation of the digital marketing industry; nor will it enable a company to realise the full potential benefits on offer. The key is to get a workable balance – and that demands a best practice approach based on open communication and trusted partnership. There are two vital components of this model. Firstly, building communication and collaboration across the business, from marketing and finance to IT, to gain a far better understanding of the overall commercial goals and the way in which different aspects of the digital marketing mix can support those goals. Secondly, taking these objectives to an agency or agencies and developing a new, workable relationship that delivers better value. Facilitating Communication The truth is that digital works – but not all digital, all the time. Companies need to understand requirements and determine priorities before embarking upon any agency discussion. Once understood, a company can take this set of objectives to the agency or agencies, and embark upon an open discussion about how this can be achieved. On the agency’s side, this requires a recognition that measures need to be clear and transparent – the opacity of the past is simply no longer acceptable. Organisations need to understand how money is being spent, how commission structures work and where a brand is appearing. In addition, marketers also need better insight into the latest tools and technologies - and their potential for the business; what should be measured and how each

of the channels within the digital area connects with commercial outcomes. Clearly transparency on the agency side is an essential component of these new measures of success. Sophisticated procurement can play a fundamental role in every aspect of this process – from liaising across the business to determine priorities, to negotiating with agencies. Critically, procurement can deliver the impartial expertise required by those companies lacking the internal digital experience and confidence needed to both determine priorities and negotiate with agencies. Marketers need to take a step back and stop chasing every new digital opportunity. The fact is that despite the huge amount of wasted digital investment, companies are still gaining value – just imagine how much value could be attained with a more focused and accurate approach. Digital is still relevant, of course; but not all digital, all the time. In a maturing market, it is time to accept the truth about digital marketing and to move from irrelevant and opaque measures towards a highly transparent model that enables companies to stop wasting up to 60% of the marketing investment. But this is not just about wasted digital marketing spend; it is about business value. When a poorly placed advert can have a detrimental impact on a brand, reputation or share price, no company can afford to get this wrong. To reduce this risk companies need to gain control over this digital investment – and that requires not only transparency but a clear focus on delivering against business, not simply marketing, objectives. It is clearly time for a best practice approach that will deliver a clear understanding of the priorities, and opportunities, closely tied into commercial objectives, and truly enable companies to realise the full value lue ffrom the digital investment.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

31


INSIGHT

Aligning procurement to get more from your marketing spend

T

he marketing landscape is an ever evolving entity; with trends, movements and best practices as changeable as the wind, marketers face the often insurmountable challenge of constantly staying ahead of their competition. And, while there are many opinions on where marketers should be focussing their attention, or “the biggest challenges for CMOs today” (a quick google search will deliver a plethora of articles), something that will always remain a critical consideration for marketers is the ability to get more from their marketing spend. As a CMO myself, I can relate to this challenge. I’m always looking for ways to do more in the face of new budget, time and resource constraints; and nowhere is this challenge more pronounced than in digital. However, working in my favour, my Marketing Procurement colleagues here at Proxima are more than willing to share their knowledge and experience of the digital provider / technology landscape; drawing on insights from across sectors (and clients) to allow me to make smarter investment decisions. A privilege many marketers believe they do not have themselves. But the truth is, they do. It was this that prompted my involvement in The Digital Disconnect a recently published research paper that explores why the value of digital activity remains opaque, highlights the reasons for poor digital spend practices, and offers a practical guide for gaining true business value from digital marketing through better procurement practices.

32

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


INSIGHT

The Digital disconnect How do we determine spend effectiveness? In my experience, marketers are no stranger to defending the effectiveness of digital; particularly as the wider business often fail to grasp how digital activities (such a content marketing) directly attribute to the achievement of corporate objectives – beyond brand and soft customer activity metrics – into real commercial results. But do we as marketers really understand how to measure and report on the effectiveness of digital spend? The plethora and diversity of attribution models suggests that this is not the case. Even the most popular attribution models offer very rudimentary ways of tracking the true impact of digital. Many fail to incorporate brand sentiment and customer experience. And, as companies move away from “spray and pray” marketing practices, and head towards personalisation, profiling and behavioural targeting; marketers are struggling to serve the right content to the right people at the right time and in the right context in terms of their behavioural patterns. This has led to an explosion in the number of external digital agencies engaged by in-house teams. So, as we increasingly look to third parties to help run our digital activity, how can we be sure that we are achieving spend effectiveness? With a little help from my friends That’s where procurement should come in. Not just at the final stages of the on-boarding process for digital agencies (pricing and contracting) but from the

34

But do we as marketers really understand how to measure and report on the effectiveness of digital spend? very beginning. Procurement should be helping us get a better understanding of the provider and technology landscape assessing the market and bringing advice and insight on what suppliers can do; innovations in the supply market, and how all of this can tie in with marketing objectives. For the procurement of digital marketing agency services in particular, procurement should be helping marketers “unbundle” their agencies, helping them to better understand the diseconomies of scale at play, with both the services and the price points. From a service perspective: How does the pricing work? Am I being sold the best product for my specific needs? Am I getting the best value for money possible? How would it work if I broke apart all the elements and used specialist agencies for each part? From a

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


INSIGHT

technology perspective: How do the algorithms behind programmatic work? What is the real digital supply chain between agency and media outlet? Is the audience I am reaching real? Is the audience I am reaching the audience I care to reach? How and where are customers engaging with my brand messages – does this impact the likelihood to buy? These are all questions that marketers should be asking, and procurement should be helping them get the answers. What exactly should procurement be doing? Take the example of the programmatic buying minefield. We’ve seen many instances where marketers have fallen foul of the dangers of poor programmatic buying practices with controversial, or less than tasteful ad placement, or simply serving ads that don’t deliver the expected ROI. But how can we avoid, or at least mitigate the potential risks associated with buying in real-time? One approach, is to turn to the people who know most about buying – procurement.

Coming back to the example of programmatic, the advantages of engaging procurement in the programmatic buying process are threefold. 1. Mitigating risk: Procurement are trained to ask the right (sometimes hard) questions to better understand and advise on the risks, such as the reputational or commercial damage that poor commercial practices might bring. Procurement should then work with you to ensure that not only are these risks identified, but there is a plan to mitigate or contract against them. 2. Ensuring value for money: Procurement’s role here is to help marketers understand how each piece of the “programmatic puzzle” is going to contribute to the commercial goal. Procurement should help interpret the algorithms, rules, players and costs at each stage and connect how each of these layers impact commercial objectives and budget decisions. 3. Avoiding wastage: New research highlights that around 60% of marketing budgets are wasted annually. And, with a significant portion of this wastage linked to poor programmatic buying practices (e.g. local adverts appearing in national spaces), marketers need another pair of watchful eyes to ensure that every penny spent is contributing to the wider commercial objectives. Clearly then, it’s time for us marketers to take a different view on what good procurement is capable of achieving. In my own experience, working closely with some of the leading minds in procurement, it is interesting to see first-hand the value that proper procurement practices can bring in terms of spend effectiveness, greater transparency and better control when it comes to my d bet digital marketing expenditure..

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

35


INSIGHT

Up to 60% of global marketing budgets being wasted every single year New research by procurement services provider Proxima, finds that spend on digital marketing such as search engine optimisation, mobile apps and video-on-demand services in 2015 is failing to deliver the value companies should expect. With 50% of total advertising budgets in the UK (totalling around £7.9bn), and around 30% in the US (around £32.9bn) being spent on digital marketing, poor commercial management means brand and commercial content is not reaching the right audience.

P

roxima’s marketing specialists found that up to 60% of global digital spend is wasted every single year. With up to 35% of all web activity being fraudulent or artificial and 54% of online ads not even being seen by a human, there are vast contrasts in spend effectiveness and a lack of transparency. It is therefore extremely difficult to correlate ROI in digital marketing back to direct commercial outcomes. John Butcher, Marketing Services Director, Proxima, comments, “There are several factors causing a disconnect between digital activity and commercial outcomes: fear vs. rational thought as a driver for action; a generational gap within teams; measuring inputs vs. true business outcomes; and the gap between what is known and what is unknown in digital marketing. All of these factors combined create a lack of transparency and consequently, a lack of control over this significant area of business spend.” Companies need to better understand how to buy digital marketing tools and channels, how to work with third party media networks and ultimately manage the digital marketing budget better. The involvement of procurement can help marketing leaders highlight the effectiveness (ROI) for each channel and component of digital marketing investment.

36

Butcher adds, “Achieving better control requires transparency across the entire spectrum of digital expenditure. For example spend on directto-customer acquisition channels has relatively clear ROI measures, as there’s no intermediary intervention. However, as the channel map moves from acquisition to engagement/retention, the number of intermediaries grows and ROI measurement becomes opaque. “This opacity is resulting in ineffective digital marketing spend, fraud and wastage and because there is no “industry standard” approach, businesses do not have sufficient transparency, nor do they have sufficient capacity, to effectively control this area of significant investment. However, in such a turbulent environment, businesses can’t afford to get this wrong. “Gaining transparency of any part of the supply chain can help drive benefits in cost, quality, control and risk management. Aligning agency and client relationship expectations and outcomes from the start can help avoid any future problems. This is where good procurement, acting as the ‘marriage counsellor’ between client and agency, can make a difference between a successful and a bad relationship. “Tasking procurement to lead cross-functional collaboration between all intermediaries frees marketing leaders to better engage with customers, focus on brand ambassadorship and ensure trate is aligned to true commerthe marketing strategy cial outcomes.”

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


INSIGHT

CMOs should embrace procurement

T

he length of a relationship between marketing agency and client is often a relatively accurate measurement of a successful partnership. Though every agency-client relationship is structured differently, particularly now with so many specialist agencies in the market, recent studies suggest a typical contract length is in the vicinity of three years. That’s not a very long time, particularly when compared to the typical relationship length between company and legal representation or company and auditing firm (and also when taking into account the time it takes to on-board a new agency). What are the drivers of change? Buyers who feel that the outputs are not in proportion to the costs, will trust the agency less and will move to another one. Perhaps the clients feel exposed in front of senior stakeholders by the poor quality of work completed by agencies, particularly as marketing budgets now come under even more scru-

38

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

tiny from senior executives across the business, and by the board. Whatever the case may be, the reality is companies are shopping for new agency service providers with relative frequency. In sizeable organizations, procurement is usually involved in some form when a sourcing need arises, whether it is for material goods or support services. Traditionally, however, procurement has played a minimal role in helping organizations find and secure marketing services, usually only entering the process towards the end when it becomes time to haggle over price. Why? CMOs tend to have a pretty tight grip over their budget and they often exclude procurement from the ‘solution shaping’


INSIGHT

phase. They exclude procurement teams from their process largely due to a scepticism of procurement’s value-add and a disconnect between procurement’s objectives, usually defined by cost savings, and marketing’s objectives, which are tied to business goals and brand. But this is a mistake True value can be realized on both sides of the client-agency relationship when procurement is engaged from the beginning of the planning stage by marketing teams, acting as an intermediary between agency and client, and is engaged on an ongoing basis thereafter. Here’s why: • Measurement and accountability: Procurement’s

expertise is in deriving the greatest possible value and innovation from suppliers of all types, and holding them accountable for performance. During the budget planning and deliverable setting stages, the CMO should leverage procurement’s abilities to help marketing teams establish performance metrics and weave those into the contract, holding agencies accountable for the metrics they provide. In this way, the CMO and CFO can gauge the true effectiveness of each segment of their budget. Breaking the silos: Marketing’s core focus tends to be the end user. But in reality, they need to be more in touch with all elements of their business and have a deeper understanding of broader goals. Procurement is already there. Procurement is already working with different business units and sector leaders and can share insights and useful intelligence that can help improve marketing’s reputation and performance across the business. Driving insight: Today more than ever, marketing campaigns are driven by the availability of Big Data. Metrics not only

assist in gauging the effectiveness of a campaign, they are used extensively for campaign targeting and timing. For this to happen effectively, marketing needs to rely on IT and, by extension, procurement to help establish the necessary systems and platforms that collect and aggregate data and yield useful and actionable analytics and insight. While there is certainly a role to play, procurement should not be involved in all facets of the companymarketing agency relationship and should steer clear of things such as development of overall marketing strategy, judgment of the creative output of agencies and whether agency output satisfies requirements. CMOs may find it useful to use procurement as an independent sounding board, but it should be up to each individual CMO to assess if procurement could add value in these areas (and would be considered the exception rather than the rule). The onus is on both sides of the equation to come together with a more open and collaborative mindset for the good of corporate objectives. Procurement ultimately needs to be more proactive in seeking to support marketing earlier in the planning process. This means procurement teams need to move conversations beyond how they can help drive costs down at the end of the supplier selection process, and proactively align themselves with wider commercial aims and challenges at the start. CMOs need to open their thinking to the idea of including procurement as they engage in new marketing agency relationships and manage those over time. When suspicions are removed and each team’s skills and core competencies are leveraged to the fullest extent, the best can be extracted from marketing services suppliers leading to longer lasting and more mutually beneficial relationships.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

39


July - August, 2016 Issue No.: 04/2016

Eastern Africa Premier Supply Chain Magazine

PROCUREMENT LOGISTICS

&

KSHS. 400.00 TSHS. 8,000.00 USHS. 12,000.00 USD. 5.00

Management

Kenya: East Africa Logistics Outperformer

26

PROCUREMENT & LOGISTICS MANAGEMENT

Harnessing supplier insight to spot crises and opportunities

30

Six in Ten Digital Adverts are not seen by Humans

52

How to Manage Your Fleet Management Company

Kshs 2,400/-

1-year (6 issues)

/ORGANIZATION

MPESA Paybill: Buy Goods, 492161

Made payable to Proc & Logistix Consult

Proc & Logistix Consult P.O. BOX 40619 00100 GPO, Nairobi-Kenya. Mobile + 254713727860 / Tel +254 0204404488/02044002479 subscription@procurementandlogisticsonline.com / www.procurementandlogisticsonline.com

40

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


INSIGHT

A Look at Bonded Warehousing Bonded Warehouses and Foreign Trade Zones (FTZ) both deal with foreign goods with varying degrees of custom clearance and other import related statuses. However, thatâ&#x20AC;&#x2122;s where the similarities end. FTZâ&#x20AC;&#x2122;s and bonded warehouses both have pros, cons, and different purposes for each. This article will focus on the advantages inherent to bonded warehousing solutions.

What Is a Bonded Warehouse A bonded warehouse exists as a secure building or area in which dutiable goods and items may be stored. They may also be manipulated or undergo manufacturing processes without a payment or duty. These warehouses provide secure and official supervision over goods prior to the payment of duty. The duty becomes payable once the goods have been moved from the warehouse for consumption or use. In a bonded warehouse re-labeling, storing, manipulation, remarking, processing, and salvaging may take place. Cleaning, sorting, and repackaging may also take place but only under special approval.

Bonded Warehouse Advantages Delayed payment of duties is one reason a business or company may opt to utilize a bonded warehouse, as payments are not due until the product is moved for distribution or consumption. Therefore, the importer has full control over their money until the duty is paid upon withdrawal of the items. If no domestic buyer comes forward for the imported

articles, the importer then has the option to opt to sell the merchandise for exportation. This way, the importer does not have to pay any duties. Perhaps the most significant advantage, however, is the greater geographic flexibility of locating the bonded warehouses. Additionally, the application process is somewhat less rigorous than that of the FTZ. Businesses not located within a designated FTZ or sixty miles from the nearest zone might find a bonded warehouse to be an excellent option. Though both are used to store imported goods, FTZ and bonded warehouses vary immensely. If you would like to learn more, contact us today.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

41


COVER STORY

Kenya: East Africa Logistics Outperformer BMI highlights Kenya as the logistics outperformer in East Africa when compared to Tanzania, with the country benefitting from a more developed port sector and stronger transport links than its neighbour. Kenya and Tanzania both offer companies entry and exit points into the East Africa Community (EAC) and other hinterland states and so are set to compete with one another in the logistics sphere. Kenya is taking the lead and has been picked by the EAC as the regional hub for its autos trade. Auto companies are already making inroads into Kenya, with India carmaker Tata choosing the country as its entry point to the region. While Kenya may be our EAC logistics outperformer, the country ranks mid-table in comparison with the seven sub-Saharan African countries (the others are Angola, Botswana, Ghana, Namibia, Nigeria and Tanzania) which we have identified as offering strong opportunities to the automotives sector and which we are analysing from a logistics point of view. Key Points • Better developed than Tanzania for EAC gateway role; • Congestion at the port of Mombasa is a major challenge to be overcome, but short and long-term expansion strategies are in the pipeline; • Outperforming Tanzania, but has a mid-table ranking when compared to the other sub-Saharan states that we are analysing; • Road over rail in internal transport sector, with LAPPSET corridor to boost both transport modes; • Imports are costly despite low levels of bureaucracy and relative speed of delivery; • Kenya’s expanding automotive export role set to benefit from the fact that it is cheaper to export than to import.

Mombasa feeling the pressure Like Tanzania, Kenya is reliant on one port to meet both its domestic import and export needs. It also has to function as a gateway with Kenya - like Tanzania - being a key entry and exit point for goods into the EAC (whose members as well as Kenya and Tanzania are Burundi, Rwanda and Uganda) and also into regional hinterland countries such as South Sudan, Ethiopia, and the Democratic Republic of Congo (DRC). In Kenya’s case the country’s main port is Mombasa, while the port of Dar es Salaam is the primary facility in Tanzania. These two ports are responsible for almost all of the region’s external trade. Both of these

42

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

facilities have been plagued by congestion in recent years, as investment in them has not been sufficient to enable them to cope with the growth in demand. This is underscored by the country’s port infrastructure rankings globally, with the World Economic Forum’s Global Competitiveness Index placing Kenya’s ports in 91st place out of 144 states. However, Kenya’s port sector scores relatively high in comparison to the seven sub-Saharan African countries that we are analysing, being ranked third out of six states (Angola is not ranked). The country’s port infra-


COVER STORY Kenyan port handled 770,804 twenty-foot equivalent units (TEUs), 296,804 TEUs above the 475,000 TEUs that Dar es Salaam handled for that year. BMI also highlights that Kenya, like Tanzania, has experienced strong growth, with box throughput volumes at Mombasa expanding by 195.8% over the last decade from 305,427 TEUs in 2002 to 903,443 TEUs in 2012. Between 2011 and 2012 container throughput at the port increased by 17.2% and we expect this robust growth to continue with a y-o-y increase of 13.2% forecast for 2013 and container throughput growth at the port projected to increase by 79.4% over the medium term (2013-2017). The rapid growth at Mombasa has, like at Dar es Salaam, led to issues of congestion, which has impacted both the reliance of goods deliveries and the cost; shipping lines are regularly adding surcharges on routes calling at Mombasa, a major drawback for firms looking to use the port.

Kenya is taking the lead and has been picked by the EAC as the regional hub for its autos trade. Auto companies are already making inroads into Kenya, with India carmaker Tata choosing the country as its entry point to the region

structure is considerably above its EAC rival Tanzania, which was last out of the six states and ranked 117 globally. Kenya’s relatively stronger port position is further highlighted by the country’s connections on container routes and the port of Mombasa’s throughput. According to UNCTADstat’s Liner Connectivity Index Kenya is ranked higher than Tanzania, although BMI highlights that when compared to six of its sub-Saharan peers (Botswana is not ranked as it is landlocked) Kenya and Tanzania rank low, in fifth and sixth place respectively. Mombasa also outperforms Tanzania in terms of throughput. In 2011 (last available data for both the port of Mombasa and Dar es Salaam) the

Congestion Being Addressed In Short And Long Term However, the congestion issue is being addressed, with both short and longer-term tactics in place. A new container terminal is currently under construction at Mombasa, which will ease some of the burden on the port’s current facilities. A longer-term strategy is a move to develop a new port for Kenya, with plans to develop this major facility in the north of the country. The port of Lamu is being developed with Chinese investment. The new facility, which will cost US$5.3bn, will be spread over 700 acres of land. It will include a 10-berth container terminal, three bulk cargo terminals and an oil terminal. The port will serve as the maritime entry point to the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor,

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

43


COVER STORY

which will include rail, road, oil pipeline and fibre optic cable connections with South Sudan and Ethiopia. The site will also be home to a new international airport. This transport corridor will enable Kenya to be an even more effective entry point for new and used cars for South Sudan and Ethiopia, in addition to the onwards transport of any vehicles assembled in Kenya. Indian autos maker Tata has chosen Kenya to be its regional assembly hub over Tanzania as a result of its better infrastructure. This transport corridor, once completed, will give Kenya even more of an advantage in catering for the rapidly growing new country; South Sudan’s trade through Mombasa has already risen from 7.5% of volumes in 2011 to 11.6% in 2012. With regard to the autos sector, the development of South Sudan’s industries, in particular the oil sector, has given rise to an increasing demand for commercial vehicles, which are entering the country from Kenya.

Internal Network Also Being Upgraded Developments such as the LAPPSET Corridor will also help improve Kenya’s internal road and rail networks. Improving the ports sector through new container terminals at Mombasa and the new port at Lamu are all very well, but without effective ongoing connections these are useless. A decent internal network is vital to transporting autos onward to hinterland countries, and to enable companies to develop

44

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

assembly plants in Kenya itself. Kenya’s road and rail networks are mid-table according the Global Competitiveness Index, coming in third and fourth place respectively from the six states measured (with Angola once again not ranked). Road is therefore the outperformer in Kenya’s internal transport network, with rail surprisingly ranked lower than that of Tanzania considering that Kenya boasts a larger rail network. Kenya’s railway network stretches for 2,066km compared to Tanzania’s 969km rail road. Like Tanzania, Kenya operates on the narrow gauge rail system linking it with its neighbours. We believe that Kenya has the potential to get the first-mover advantage with regards to autos production, becoming the first country to manufacture vehicles, rather than simply being an assembly hub, reliant on imports of kit parts in containers, or else of new or used vehicles. Should Kenya wish to fulfil this role, however, the country needs to improve its inter-


COVER STORY could mean that the companies look to other African countries to use as a base. Just as with its ports, road and rail sectors, Kenya is a mid-table country of our seven, though importantly we note that it does place above neighbouring Tanzania. In terms of the lead time to import goods (a measurement of how long it takes goods from the port of discharge to arrive at the consignee), Kenya scores relatively well according to data from the World Bank. The four days it takes to import goods (median case) puts Kenya in joint second place from six of our seven countries (landlocked Botswana is not ranked), drawing with Nigeria and behind only our outperformer Namibia. The competitive speed by which imports can be brought into Kenya is aided by its relatively low level of bureaucracy. The seven documents needed to import into the country puts it in joint first place (along with Botswana, Ghana and Namibia), and easily beats Tanzania’s burdensome 10 documents needed to import. However, despite the relative speed of imports and the competitive nature of Kenya’s import bureaucracy, the country’s ease of imports is let down on the cost front. The World Bank records that it costs to import, on average US$2,350 per container. This places Kenya considerably above the global average of US$1,747 per container (measured across

Developments such as the LAPPSET Corridor will also help improve Kenya’s internal road and rail networks. Improving the ports sector through new container terminals at Mombasa and the new port at Lamu are all very well, but without effective ongoing connections these are useless nal transport networks in addition to the ongoing investment in its ports.

Imports costly The ease by which autos and logistics companies are able to import vehicles and goods into Kenya is vital to their potential success. Too expensive or excessively bureaucratic a system will result in unnecessary costs and delays which

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

45


COVER STORY

184 countries) and also makes it less competitive regionally. Out of the seven sub-Saharan states that we are analysing, the cost to import a container places Kenya in fifth place, with the cost to import a container cheaper in all but Angola and Botswana. Tanzania is cheaper to import by US$785 a container, though we believe that shippers could be happy to pay the extra for the more competitive infrastructure network and ease of access to rapidly growing markets such as South Sudan.

Export Opportunities With Kenyaâ&#x20AC;&#x2122;s Auto Manufacturing Potential As noted above, Kenya already plays a key role in the re-export of autos to other regional countries lacking their own ports, either new or used vehicles imported from abroad or those assembled at Kenyan assembly plants. Should Kenya become the first country to develop its own autos manufacturing sector the ease with which exports can be made will become even more important than it is already. Indeed, a number of carmakers are investing in Kenyan production plants, with an eye to exporting to the wider EAC region. Toyota Motor is not only building a production plant but has also opened a warehouse and logistics centre to store and process parts for sale in east and Central Africa. Rival General Motors East Africa has expanded its existing plant to increase sales in East Africa. In terms of the lead time to export, Kenya is

46

Road is therefore the outperformer in Kenyaâ&#x20AC;&#x2122;s internal transport network, with rail surprisingly ranked lower than that of Tanzania considering that Kenya boasts a larger rail network already competitive, coming joint first at just two days, along with Ghana and Kenya, and ahead of Tanzania (3.2 days). This is half the time it takes to export. Kenya requires eight documents to export, putting it in fourth place behind Botswana, Tanzania (one of the few instances in which Kenya is outperformed by its regional competitor on the measures we have been looking at) and Ghana. However, once again Kenya does not score well in terms of cost. At US$2,255, the country is cheaper only than landlocked Botswana to export a container, and is more than twice as expensive as Tanzania. Kenya will have to hope that companies are content to pay the extra for the better infrastructure it e au can offer if it is to secure its place as the autos logistics hub for the East Africa region.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


PRODUCTS

NelsonHall Launches NEAT Vendor Evaluation & Assessment Tool for Procurement BPO Services

N

elsonHall, the leading global BPS and IT services analyst firm, has today launched a new tool to assist strategic sourcing managers in assessing vendor capability in Procurement BPO services. “ability to deliver innovation in support of client-specific requirements” The NelsonHall Vendor Evaluation and Assessment Tool (NEAT) for Procurement BPO is now available to NelsonHall clients, and is also available for a period free-of-charge to buy-side organizations through NelsonHall and through its partners SIG and SSON. The tool presents an overall evaluation, plus others that show how vendors are positioned within a specific market segment (i.e. an area of focus designed to meet certain procurement business requirements). The Procurement BPO market segments include Operational Focus, Sourcing Focus, and Transformation Focus, and there are also market segments reflecting capability in specific geographies. Suppliers of Procurement BPO services covered by this NEAT analysis include Accenture, Aegis, Capgemini, DSSI, ExperBuy, Genpact, GEP, HCL Technologies, Infosys, IBM, Optimum Procurement Group, Proxima, Tata Consultancy Services and Xchanging. The NelsonHall NEAT tool for Procurement BPO services is part of NelsonHall’s “Speed-to-Source” initiative. The tool sits at the front-end of the vendor screening process and consists of a two-axis model: as-

sessing vendors against their “ability to deliver immediate benefit” to buy-side organizations and their “ability to deliver innovation in support of client-specific requirements”. The vendors are scored against a wide range of criteria, establishing a number of scenarios, each representing a different business situation or client business need. To add further value, the NEAT tool enables buy-side organizations to input their own weightings and tailor the Procurement BPO services dataset to their specific requirements across ~ 40 individual vendor evaluation criteria. Using the interactive web-based tool, sourcing managers can configure the Procurement BPO services NEAT evaluations in accordance with their own priorities and business requirements for service offerings, benefits,, delivery capability and other criteria.

Siginon Roots Growing in Africa “We are committed to consistently serving our airline customers with exceptional service that is benchmarked against global standards,” declared Jared Oswago, Divisional Manager, Siginon Aviation at Jomo Kenyatta International Airport (JKIA) in Nairobi. Singapore Airlines Cargo, a Siginon business partner for the past ten years, resigned its handling contract for an additional three years. Named for a tree found in the Rift Valley of Kenya, Siginon Aviation Group is a multi-modal handling company that has been in business since 1985, when it began in Mombasa with four people and a couple of trucks. Today the company serves East Africa cargo and logistics, including the seaport of Mombasa as well as the airports of Mombasa and Eldoret. Siginon debuted a large new cargo-handling center at JKIA in 2014 featuring all the bells and whistles, including the finest cool-chain operation at the gateway.

Siginon sees itself expanding its business base upon completion of the very exciting standard gauge high-speed Kenya railway, which is scheduled for operation by mid 2017. The Sh400 billion infrastructure investment will unlock movement between the Port of Mombasa and Kenya’s capital of Nairobi. But business will get even better when the line extends SGR to Uganda, Rwanda, and South Sudan. No doubt, Africans are excited and preparing for what is expected to be a major boost in transportation and employment. The positive effects can even be felt ahead of the rail line debut in Kenya, evidenced by the reported 50,000 people employed directly or impacted in some measure by the SGR mega-project. “Our passion is to be Africa’s leader in logistics and air cargo handling,” beams Ruth Nduta, Brand & Corporate Affairs Manager at Siginon Group.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

47


MANAGEMENT

Managing a fleet

Even for many companies and government agencies whose first line of business is not transportation, mobility is still a lifeline to their work. Municipalities depend on emergency and public service vehicles, retail and food distributors rely on service and delivery vans, and many corporations assign vehicles as a part of the job. The City of New York alone operates nearly 27,000 owned and leased vehicles that make possible the important work of managing its competing public responsibilities.

Managing a fleet These agencies and commercial enterprises spend millions of dollars procuring and paying for vehicles and their associated costs in insurance, fuel, repairs, and maintenance. To offset the risk and the day-to-day management of these expensive assets, many enterprises look to fleet management providers for help acquiring, maintaining, and replacing vehicles so they can focus on their core business. Fleet managers have two main goals: reduce costs and increase the uptime of their vehicles. And if they look to a fleet management provider, which many do, they do so to achieve these goals above all others. Since 1962, when the Singer family founded Merchants Fleet Management, the company has set itself apart from other fleet management companies by entertaining business options that others have been unwilling or unable to consider. Today, Merchants’ 350 employees serve more than 800 unique commercial customers in retail, energy, real estate, pharmaceutical, engineering, and utilities, and local, state, and federal government around the country. This translates into more than 40,000 vehicles under lease and management. Despite being a small competitor in a crowded fleet management field, Merchants is known widely for its standout customer service.

Ramping up Managing fleets is a complex undertaking. Ordering large numbers of vehicles to match a diverse set of applications and making sure those ve-

48

hicles are up and running—finding the best repair shop, negotiating prices, and paying vendors—are just the tip of the iceberg. Merchants also ensures that vehicles are licensed and compliant, and it offers programs that help customers manage fuel spending, tolls, telematics, accidents, violations, insurance, and driver education. Merchants’ services are built on its ability to aggregate an immense volume of data. The company must collect and process up-to-date information from thousands of vendors, including dealerships, auctions, delivery houses, fuel locations, and maintenance facilities across the country. It also tracks costing information, car manufacturer specifics, vendor terms and prices, telematics data and maps, performance and violations records, and state-specific driver requirements. All the data and related services that Merchants offers come down to one thing: helping customers spend less. And Merchants knows that optimizing its customers’ total cost of ownership per vehicle is the key to accomplishing that goal. To do so, Merchants needed a unique data model and a custom fleet management platform on which it could consolidate data sources, improve and rationalize processes, scale its operations, and give the market a state-of-the-art solution made specifically to benefit fleet managers.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


MANAGEMENT

Investing in the customer This is when it turned to two leading IT services firms and Microsoft partners, Pariveda Solutions and Tallan, to help build TotalView, a custom platform built to Merchants’ specific requirements. “We needed a big data model, a convergence of all the different information and tools to help our customers,” says Dan Hannan, Executive Director of Strategic Consulting Services at Merchants Fleet Management. “There’s been a myriad of places you’d have to go to find data. But we wanted to build the architecture for all the different cost components into one model and give customers the real-time capabilities they can’t get anywhere else in our industry.”By building on the Microsoft stack, developers from Pariveda and Tallan used the Micro-

soft .NET Framework to create the architecture needed to bring together all the necessary data for asset lifecycle management, including costing information, utilization, fuel spending, and maintenance tracking. “The flexibility of the Microsoft technology stack, including Microsoft SQL Server, gives our team the ability to architect actionable solutions and data,” says Ken Kauppila, CIO of Merchants Fleet Management. “It’s one thing to tell somebody how much they spend on fuel, but another to show them what needs to be done as a result of the data. The fact that the Microsoft stack and SQL Server have the flexibility to build those roles and display that data in compelling dashboards is very powerful for us.” The appetite for such a solution was immediately confirmed. Merchants’ customers were eager to see the capabilities built specifically for managing day-to-day fleet operations. Merchants knew their customers wanted ease of use and the ability to drill down into an almost infinite number of dashboards.

“Total View is how we compete now,” says Hannan. “When we talk to a new customer who might be doing business with a competitor, we demonstrate TotalView. And customers say, ‘I can’t do that today. I don’t have visibility to this information.’ Or, if they do, they have to go to nine different places to get it.”

Made to order TotalView gives Merchants Fleet Management customers a state-of-the-art, intuitive, selfservice platform they can access from any device. It allows them to easily track diagnostics, fuel spending, driver data, and workforce productivity from a vehicle anywhere under their management to their enterprise IT system in real time. “TotalView produces scorecards that we take to customers on a quarterly basis,” says Hannan. “Scorecards give C-level executives a way to visualize the numbers, talk about the impact to the budget, and determine what they need to do culturally to better run their fleet.”

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

49


MANAGEMENT

With customizable and dynamic real-time dashboards, customers can see at any given moment how many vehicles they have under lease, which ones are under total management, how many are fueled up today, and the number of outstanding maintenance invoices. These metrics reduce vehicle downtime, increase management efficiency, and significantly reduce operational costs. In addition to increasing visibility for its customers, Merchants can use TotalView’s suite of tools to rationalize hundreds of disparate business processes, eliminate point solutions, and integrate multiple data sources. Processes that might have taken an elapsed time of three to five days now take only seconds and a few clicks of a button. “TotalView is our face to the customer and the rallying point for our company as we continue to grow,” says Kauppila. “It is also an efficiency platform that drives rationalization and integration to reduce our cycle time and get critical information to our customers faster.”

The victory lap The new capabilities from TotalView are the first of their kind in the fleet management field. “There’s a lot of computer science behind this,” says Kauppila. “We went through a logical data- modeling exercise and identified hundreds of entities and how those are wired together to run our business from supply side to demand side. We’re not surprised our customers love what they see with TotalView because we planned for this.” But perhaps the most important proof of the pudding for Merchants is what it can save for its customers. “Since we launched TotalView in 2014,” says Hannan, “we’ve identified savings of over $25.5 million in lifecycle management costs for our customers. It’s the day-in, day-out execution and

50

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

management of the fleet—anything from reducing idle time and fuel spend to downsizing a vehicle to better meet the application.” TotalView not only reduces the total cost of ownership for customer vehicles (the goal that Merchants set out to accomplish), but it also improves the ability to predict asset lifecycle based on costing information, utilization, and asset age. It’s no surprise that TotalView has attracted new customers. In the short time since it has deployed the new solution, Merchants has increased sales by 15 percent. “Fleet management is a competitive industry and a unique science, and there is no off-the-shelf software that does what we need,” says Kauppila “So the tools we get with TotalView by using the Microsoft stack allow us to build unique, compelling functionality that is very marketable and helps us on an aggressive growth plan.” In a crowded and consolidating market, Merchants Fleet Management is the David competing against the Goliaths of the industry by building a tool that reinvents the way companies manage one of their most investment-intensive assets.


MANAGEMENT

Big Company Supplier Squeeze – a Disturbing Trend Continues

Procurement Leaders invites Proxima’s Jonathan CooperBagnall to explain why, despite much of the chatter around new approaches to supplier relationships, there’s still work to be done for big business procurement. and beverage industry, following the lead of Anheuser Busch who initiated these onerous payment terms on their suppliers back in 2008. The article suggests that many others in varying industries are now following suit not because they are in financial dire straits but, well, because they can. Whatever the reason may be, there is no way to impose such unreasonable terms on a supplier without, at the same time, alienating the same suppliers on whom you rely so heavily. We see this as just another example of old school bullying tactics employed by companies who fail to

In the sometimes complicated dynamic of the company-supplier relationship, it would appear that a contradiction of sorts is unfolding before our eyes. On one hand, companies of all shapes and sizes are continuing to rely more and more on external suppliers for everything from back office services to the business’ core offering. We’ve referenced our Corporate Virtualization research enough for you to know that by now. Yet, despite the growing reliance on suppliers and the reality that so many organizations today could not function without them, we continue to see some of the same hardball tactics and adversarial attitudes from companies towards the suppliers that have existed for too long. Such attitudes are on display in a recent New York Times article that revealed that some sizable, global companies are now asking for 120 days – four months – to pay their suppliers. They are doing so even as they continue to require 30 days payment from their customers. This practice has been prevalent in the food

understand the new paradigm of supplier relationships. Heavy-handed dealings with suppliers, either by haggling over price or extending payment terms as AB has done, may very well net savings benefits in the short term. But in the long run, we believe these companies will find that they are simply stepping over dollars to save pennies. How motivated would you be if told you have to wait four months to get compensated? Companies need to embrace suppliers as if they were actual members of the organizations, leveraging their capabilities to the fullest extent to derive the greatest value. Suppliers should be invited to the table and rewarded for helping organizations innovate and find better ways of doing business. Many have this capability. Keeping them at arm’s length, stepping on their heads and bleeding them dry surely won’t draw this out. Enlightened and progressive companies will understand this and will reap the benefits.

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

51


MANAGEMENT

How to Manage Your Fleet Management Company With resources and staff increasingly dear, fleet managers are often forced to outsource. When they do, they become vendor managers as much as fleet managers. Here is how to effectively manage a fleet management company.

Managing a fleet of company vehicles is a complex (and rewarding) profession. It takes an unusually broad range of skills and experience, and, in today’s economy of reduced headcounts and budget cuts, it takes smart, careful choices in outsourcing. Today, fleet management companies (FMCs) can provide services to cover any and every process or need a fleet manager has, and, when fleet managers have limited staffs (or none at all), these programs are life savers. That said, however, outsourcing now brings a new responsibility to the fleet management table: managing suppliers. Doing so can leverage the fleet manager’s effectiveness substantially.

Determining What to Outsource Before developing strategies to manage an FMC, fleet managers need to break down the various processes in the department and determine what should — and should not — be outsourced. The ultimate goal in outsourcing should be to bring in expertise and resources the fleet manager lacks, while at the same time maintaining control.

52

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


MANAGEMENT

Henry Ford had a saying: “Don’t find fault, find a remedy.” Never waste time pointing fingers. When a supplier errs, big or small, don’t spend time and resourceAs trying to prove their culpability, or find out exactly who messed up. Solve the problem and figure out how to avoid it happening again.

Management activity, on the other hand, would include: Determining policy, such as who qualifies for a company vehicle, what vehicles are provided (selector), and how long they remain in service. Deciding when to repair and when to replace damaged vehicles. What repairs should and should not be done (i.e., setting limits on mechanical or body repairs and authorizations). Put simply, administrative and clerical activities encompass how things are done, and management activities are about what is to be done. Anything that involves the allocation of company resources — time, people, money — should not be outsourced (over and above an established minimum level).

Identifying the Four Functions There are two broad categories of activity in fleet management: clerical/administrative and management. Distinguishing between the two is the first step in determining what can, and should, be outsourced. Clerical/administrative activity includes:

Communication Not what is to be communicated, but the actual form of communication itself. This includes e-mail, company Intranet, telephone, and hard copy (“snail mail”) distribution of information.

Paper flow Registration renewals, title transfers, payment of fines and violations, new-vehicle order placement, and any activity that involves the completion of forms or other paperwork (not necessarily paper, but including online forms, etc.).

Data capture and access Most FMCs provide tools that capture critical cost data, which the fleet manager can access. The aforementioned activities don’t require any specific fleet management expertise or decision making. They don’t involve how company resources are used on a day-to-day basis; they are only tools used to do so.

Although fleet management involves myriad activities, there are four overall functions that are generally fodder for outsourcing: Acquisition/disposal; either in company ownership or leasing. Maintenance, repair, and tires; keeping vehicles properly maintained, repairing them when they are damaged, and purchasing tires when needed. Accidents; reporting accidents, arranging for repairs, and recovering funds via subrogation. Fuel: the purchase of fuel. These are only the four primary service programs FMCs offer, but they cover the bulk of what occurs on a day-to-day basis. Most FMCs can provide all four via a single, master contract and fleet managers must manage suppliers via that document.

Acknowledging the Partnership The stories are legion — customers “beating up” suppliers, whether on pricing, delivery of service, or a simple mistake — and it is unfortunate that there are fleet managers who believe they must have an adversarial relationship with suppliers. The fleet and fleet supplier connection is a partnership, and any successful partnership requires input and work from both parties. Fleet is no exception. Here are some ways that can help a fleet manager ensure successful supplier programs: Be honest; Sounds obvious, but sometimes, when there is a problem, a customer (or the supplier) will insist upon pointing fingers. This only accomplishes a drawn-out event, with bad feelings on both sides. If information wasn’t

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

53


MANAGEMENT

“Don’t find fault, find a remedy.” Never waste time pointing fingers. When a supplier errs, big or small, don’t spend time and resources trying to prove their culpability, or find out exactly who messed up. Solve the problem and figure out how to avoid it happening again. sent, the wrong color vehicle was ordered, or an e-mail was neglected, admit it — quickly. Expect the same honesty from suppliers, too. Henry Ford had a saying: “Don’t find fault, find a remedy.” Never waste time pointing fingers. When a supplier errs, big or small, don’t spend time and resources trying to prove their culpability, or find out exactly who messed up. Solve the problem and figure out how to avoid it happening again. Don’t focus exclusively on what a supplier has to offer; work together to determine what can be done for each other. While keeping in mind that suppliers enjoy standardization, make suggestions they might be able to use, not only on a company account, but on others as well. An idea that reduces everyone’s costs might even pop up.

Meet the supplier’s leadership, and try to arrange for them to meet yours. Remember, the fleet/supplier relationship isn’t just a matter of getting the lowest price possible, or the supplier doing as little as possible for that price. Successful relationships involve work on both sides, and the recognition that both sides can, and should, contribute to success.

Make room for both minor exceptions as well as major contingencies.

The basic document that should govern the fleet-supplier relationship is the master agreement. Whether it contains only a lease, services, or both, it is the master contract that, if the fleet manager negotiates it carefully, will make managing the vendor much easier. On the lease side, the master agreement contains these key provisions: • Basis for determining the capitalized cost of vehicles leased.

For example, good fleet managers can have a “Plan B” for build out, rather than getting stuck with orders that can’t be filled. Communicate those plans to suppliers.

Share information with suppliers regularly Information is the grease that makes a fleet/supplier relationship run smoothly. This helps both the fleet and the vendor to move quickly.

Share the relationship with both sides of senior management

54

Negotiating the Contract

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016


MANAGEMENT Remain flexible Circumstances change, including vehicle types, replacement policy, territory realignments, and job functions. Fleet managers need to be nimble, and make changes whenever and wherever needed. The master agreement can also include services, such as the four core fleet management programs. Provisions in the contract primarily cover program fees, including: • Per-vehicle monthly fee for maintenance management. • Per-occurrence fees for accident management. • Subrogation recovery fee; usually a percentage of the recovered funds. • Rebates/discounts for maintenance and fuel program activity. Such fees (and rebates or discounts), once negotiated into the contract, don’t require “managing,” other than normal audit activity. But, there are areas where a fleet manager can manage the supplier, both tactically and strategically.

Account setup This is the most critical element of program success. Setting up the procedures, authorization levels, and work flow will govern how the program works. Keep in mind the difference between management and clerical/administrative activity when setting up programs, and also know that account setup can, and should, be an ongoing process.

Follow up •

The structure of the lease rate factor, including amortization rate, cost of funds, and lease/administrative fee.

Minimum lease term. Terms for selling off-lease vehicles. There are other terms and conditions, but these are the factors that will determine the cost of a vehicle leased under the contract, and the terms it is leased and disposed of. So, what is it, then, that a fleet manager needs to “manage” as it pertains to leasing?

Amortization rates Don’t accept “standard” rates; match rates to anticipated use and mileage.

Keep an eye on the application of resale proceeds Do a spot audit each month, and make certain that, when vehicles are sold, the proceeds are applied and the vehicle is taken off the billing promptly.

Suppliers should have a follow-up process, so drivers are able to provide feedback to the supplier on how each transaction was handled and whether they are satisfied. The results of these comments should then be discussed with the supplier, and remedies implemented, if necessary.

Account reviews Most FMCs have a standard account review process, and it is usually fairly comprehensive. Ask to see it, and don’t be shy about asking for some customization based upon your company’s specific needs. And, don’t merely accept an annual review; twice a year is better — quarterly is best. Negotiate performance standards into the contract: Most suppliers will have little or no problem doing so. When competing for business, fleet suppliers will make claims of savings, cost reductions, and other benefits they believe set them apart from the competition. Note these claims carefully when they are presented, and make them part of the contract standards. This will provide an excellent baseline to evaluate performance.

Build a Job Description Bringing on a fleet supplier is not all that different from hiring staff. When hiring an individual, companies look for experience, personal and business skills, and offer compensation. The fleet manager, human resources department, or both will build a job description, which will outline the employee’s responsibilities and levels of authority. “Hiring” a fleet management supplier is not all that different. Build a job description, which makes clear to suppliers exactly what is expected of them, what experience and capabilities they need, and how their performance will be assessed. Also, keep in mind that account reviews should be much like employee reviews, in that both parties will sit down and go over what was expected, how performance measures up to goals, and what both can PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

55


MANAGEMENT

do to get the job done better. Be neither overly critical nor soft; suppliers, like employees, would prefer an honest assessment of their performance.

Don’t Get Too Close In the movie Moneyball, a baseball player asks the club’s young assistant general manager why the GM doesn’t travel with the team. The assistant responds that the GM doesn’t want to get too close to the players. The player asks, “Is that supposed to make us easier to cut?” That anecdote can be applied to the proper management of a fleet supplier. Most suppliers provide ongoing client relations, personnel in the field whose job it is to meet regularly with their customers, make certain the program(s) are working smoothly, handle problems, and help build the relationship. This is a very important part of the partnership; however, it can lead to difficulty if it isn’t managed properly. Going to lunch, even playing a round of golf when a client relations rep calls, isn’t a problem. Most companies permit such “de minimis” entertainment. But, when a lunch turns into an expensive dinner or gift, or a week-long fishing trip, a fleet manager is flirting not only with a violation of the company’s policy, but with getting too close to an individual that, as the ball player put it, the fleet manager might one day have to “cut.” It is difficult to properly manage a supplier when the personal relationship is too close to the individual or individuals who handle the company account. “De minimis” has different meanings for different companies. Use proper judgement. Going to lunch, playing a round of golf, or attending a ball game is generally considered to be de minimis. If in doubt, ask a supervisor or the human resources department for guidance.

Manage Expectations What all of the above is geared toward is managing expectations; what you expect from a supplier, and what that supplier can expect from you. Doing this up front can help to avoid problems down the road. Know what, and what not, to outsource. No supplier will

56

PROCUREMENT & LOGISTICS MANAGEMENT JULY - AUGUST, 2016 Issue No.: 04/2016

be as careful with your company’s resources as you will. Retain those management functions and responsibilities in-house. Negotiate contracts carefully. Make certain that, beyond typical boilerplate language, you know what your company is paying, and what they’ll get for their money. Build in performance metrics, based on what the supplier said it can do, and track them regularly. Don’t just sign a contract, build a relationship. Communicate regularly. Plan for contingencies. Share information. Look for ways the supplier can do a better job for your company. Build a job description. Hiring an outside vendor/fleet supplier is similar to how internal staff is hired. Make sure suppliers know what is expected from them. Build a relationship, but don’t get too close. Check with your company to determine what you can accept and what you cannot. Expensive gifts, or cash, should be avoided. Managing suppliers is every bit as important, if not more so, as managing staff. Ultimately, a wellmanaged fleet program will benefit your drivers, and enable them to do their jobs more efficiently and successfully. If the fleet manager, however, doesn’t manage suppliers well, those same drivers will suffer the consequences.


THE MANOR 540

Restaurant Bonheur Premier African Cuisine

OUR FACILITIES

Private Lounges | Food Delivery Services | Catering | Corporate rporate Cocktail Lounges | Corporate Conference Rooms | Restaurant / Bar | Play Area |

Contact Us Muthangari Drive, Westlands Cell: 0720 314 995 | 0727 435 950 | 0721 986 284 Email: themanor540@gmail.com :The Manor 540

Premier African Cuisine

Procurement and Logistics Management Magazine July-August 2016  
Procurement and Logistics Management Magazine July-August 2016  

Eastern Africa Premier Supply Chain Magazine- we focus on procurement and logistics issues; including tender, bidding, warehousing,transport...

Advertisement