One of the benefits of living with this guy is the events I get invited to and hence the wonderful people I have the opportunity to meet. This week, I spent the day at Procurement Leaders Beyond Borders: The Expanding Role of the CPO conference right here in Chicago. I enjoy these events for so many reasons but primarily for the tidbits of insight I pick up from speakers and attendees. I’ve gone through my notes and thought I’d share with you the key insights I jotted down (in no particular order):
- I asked a panelist of CPO’s including folks from Deutsche Telekom, Starbucks, Harley Davidson and Microsoft what they thought were their top risks from a sourcing perspective. Here is what they said:
- Continuity of supply Starbucks
- The Ëœright’ management strategies for their commodities (e.g. more hedging) Starbucks
- Financial condition of their suppliers Deutsche Telekom
- Foreign corrupt practices and compliance risk specifically naming the Siemens and Daimler cases MicrosoftUS Steel also had a speaking slot and shared with the audience that the company sources 90% of its MRO, consumables (including rolls, LME metals, refractories etc), engineered components and plant services from regional suppliers while 10% comes from offshore suppliers. Many of the rolled products come from offshore sources such as Japan, Austria and the UK (a little known piece of information that tends not to get shared by the domestic steel mills too often)
- As an interesting aside, Harley-Davidson, for its direct materials purchases, sources 80% of its spend from 70 suppliers, most of which are domestic
- But by far the most fascinating topic of the day involved risk management, specifically hedging strategies. David McClain from Del Monte walked the audience through its company’s risk management strategies. According to McClain, “They [Del Monte] arbitrage risk premiums of what a supplier offers them and what they can buy in the form of a hedge, (provided one can correlate what they buy with something that can be hedged). Dave talked a lot about the forward curve and the futures markets and how the company strives to “extinguish risk wherever and whenever possible.
We recently wrote about a Corporate Executive Board study outlining the top risks of executives from large companies. Commodity volatility ranked number one. Next week, we’ll follow-up this post about an interesting little debate going on at SpendMatters. That debate involves answering the question of whether price-forecasting tools are practical for sourcing professionals or whether these tools and applications should be applied toward risk mitigation efforts. We’d argue both are required particularly as companies develop scenarios for risk mitigation efforts. We’ll cover that next week.