As Asia rises, CEOs focus on procurement and supply chain

The Asian Development Bank (ADB), in their publication “Economic Growth in Asia: Determinants Prospects” No. 220 Sept. 2010, envisaged Asia as comprising two-thirds of the world economy by 2030, up from one-third today.

This rapid, predicted shift has grabbed the attention of CEOs especially in Asia, but increasingly in the United States and Europe. The growth will give rise to increasing competition among companies and countries. This requires that individual and country competitiveness needs close attention.

A change requiring immediate attention of CEOs is the Asean economic integration that comes into effect in 2015. Positioning to be suppliers of choice in an unprotected environment will be more challenging. It will be easy to lose and difficult to win in this rapid changing environment without close attention to procurement practices and supply chain management. It is, after all, in procurement and supply chain that a major part of the costs of, and risks to, a firm lie.

The good news, as will be heard from speakers at the PASIA [Procurement and Supply Institute of Asia] Annual 2012 Global Procurement and Supply Management Conference, is that recent economic and environmental challenges have accelerated the implementation of new best practices in procurement and supply chain management.

CEOs need to be aware of these practices and insist on their application to their own businesses in order to become or stay competitive. The main practices to study are strategic procurement and electronic procurement as well as ethical practices, sustainability and risk management in supply chain.

In parallel with the economic changes in Asia is an emerging societal shift that is increasing in intensity—the move away from corruption and to ethical practices, specifically in procurement and supply management. Governments like the Philippines and Indonesia, for example, are addressing this issue. During the conference mentioned above, the vice chair of IAPI, the Indonesian Government Association of Procurement Professionals, will be sharing the successes and challenges in moving to ethical procurement and supply management practices.

A recent SWS 2012 Survey of Enterprises on Corruption study showed that, in the Philippines, according to business people who come face to face with corruption daily, there has been a large improvement in their experience regarding corruption in almost all government departments. It also showed that there is a long way to go.

Recent research has shown that the Procurement Maturity Index of a country is directly correlated to the economic health of a country. Such a correlation is logical when one considers the ripple effect of corruption being reversed. Higher prices, non-quality, lack of competition, unnecessary contracts, non-existent consulting, low esteem of employees, for example, are all part of the ripple effect of corruption. Reverse this and you get fair competition, better prices, quality and on-time delivery, cost savings from having no phantom consulting or orders and employee high esteem.

MIT in a recent study discovered that sustainability as part of the strategic thrusts of US companies had reached a tipping point. This is the point at which a practice becomes part of the fabric of business going forward. The same cannot be said of Asia, however. The momentum to sustainability is increasing and, as a CEO, it is advisable to pay attention to this move sooner than later to remain competitive.

As the Asian economy grows, competition among suppliers is going to intensify.

Most suppliers are medium-sized companies. To be competitive, one of the areas that must be focused on is procurement and supply management. Larger companies are beginning to study not only supplier capabilities but also suppliers’ suppliers sometimes down to the third or fourth tier. Suppliers need to understand this trend and, themselves, look at their risk profile as seen through the eyes of the buying company.

During the recent catastrophes—the tsunami in Japan and the floods in Thailand, for example, some large companies were caught by surprise, not because they had not diversified their suppliers by country risk, but because their suppliers had not diversified their suppliers in similar fashion. During this time, the buying companies’ suppliers were hard-pressed to deliver as their second-tier and third-tier suppliers were clustered in a single risk area.

Finally, as the need for supply chain risk management, sustainability, ethical practices, cost reduction and procurement and supply management strategy occupy a greater part of boardroom discussions, it is good to know that knowledge of best practices, trends, implementation programs and technical skills is available—there is no need to reinvent the wheel. Technology is also in sync with these strategic thrusts, enabling implementation of strategic procurement.

During the above conference to be held on November 27 and 28 at the Marriott Hotel in Pasay City, all these subjects will be addressed by the best among world practitioners (see www.pasia.org).

C-Level executives who pay attention and demand more from procurement and supply management will be well rewarded in the days ahead.

(The author is chairman of the MAP Trade and Industry committee, president and CEO of TransProcure Corp. and chairman and CEO of PASIA. Feedback at [email protected]. For previous articles, visit www.map.org.ph.)