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    Buying into Competitiveness

     

     
     
    © International Trade Centre, International Trade Forum - Issue 4/2004

    Photo: ITC

    Effective purchasing and supply chain management is critical to competitiveness and export performance. It accounts for some 60% to 70% of a company's costs. ITC's training initiative, Buying into Competitiveness, helps to meet firms' need to develop skills in this important area.

    Purchasing and supply chain management deals with the nuts and bolts of business. Implementing purchasing and supply strategies can save costs and optimize the way companies integrate suppliers, manufacturing and distribution. They are used to:

    • speed up response time to market through lead-time reductions;
    • ensure availability and flexibility of supply in response to customers' requirements;
    • build quality into products and services - if inputs do not have the right quality, neither will outputs;
    • enhance innovation through procurement of new materials, new technologies and equipment; and
    • build partnerships with other companies in the supply chain, for example through outsourcing items that can be bought more competitively elsewhere.
    Many entrepreneurs do not have the skills to manage their supply chains effectively. This requires training in information technology (IT), purchasing, inventory and logistics management and innovative ways to deal with both suppliers and customers. They need training to help them implement strategies to boost their competitiveness in a practical, structured manner. Many companies in both developing and developed countries take a reactive rather than a proactive approach to purchasing and supply chain management. In addition, firms are often resistant to change.

    Roberto Smith-Gillespie, Chief of ITC's International Purchasing and Supply Management Section, notes: "Both top management and those working at the operational level need to be open to finding new ways of dealing with both suppliers and customers." This mindset change also involves an organizational focus on more strategic and long-term approaches, as well as an investment in training to enable managers and staff to make use of "best practices".

    Since 2000, the ITC-led initiative, Buying into Competitiveness, has offered its Modular Learning System, a portfolio of training materials, to 57 organizations in 34 countries. These organizations in turn provide high-quality training to their respective business communities. Partner organizations include management training institutes, business sector organizations, purchasing and supply management associations and universities.

    ITC's training materials help firms to improve all aspects of managing their supply chains, from understanding the corporate environment, specifying requirements and planning supply, analysing supply markets, developing strategies, negotiating and preparing the contract, to managing international logistics and customer relationships.

    Because the international business context is changing so rapidly, ITC updates the modules regularly to reflect current trends. Modules include new efficiency tools to streamline the purchasing and supply chain process and increase value through reducing costs. There are also modules in response to the advent of new IT applications, in particular for e-commerce and e‑procurement.

    Training is pivotal when it comes to enhancing the ability of entrepreneurs in developing and transition economies to re-engineer their supply chain management. ITC's emphasis is on practical training that can yield immediate benefits in the commercial world. (Photo: ITC)

    Training the trainers

    To reach as many institutions as possible and build capacity in participating communities, ITC developed a model based on partnership and networking. The partner institutions involved in the network have been using the training materials for hundreds of training events tailored to local requirements, ranging from workshops to long-term courses. The latter include a group of institutions participating in the network's professional certification programme.

    The network of purchasing and supply management training institutions and their trainers is supported by ITC web portals. In addition to supplying ITC information and materials, they link participating institutions, allowing them to exchange experiences, materials and other resources.

    With financial support from the Spanish government, the Swiss State Secretariat for Economic Affairs (seco) and other donors, more than 500 trainers around the world have been trained to use the materials. Most of the training has been carried out under ITC projects covering 13 countries in Asia - including China - as well as Bolivia, Colombia, Peru and Tanzania. Self-funded training of trainers has taken place in Kenya, Mauritius and Mexico. Most trainers selected by local institutions are experienced purchasing and supply managers. The training typically takes place in the country concerned and involves 15 to 20 participants for one to three workshops over the course of three to seven days.

    ITC is also training specialists as consultants to help local firms. "We are encouraging the link between training and tailor-made support to individual companies," says Margareta Funder, a Learning Systems Officer at ITC's International Purchasing and Supply Management Section. "This will allow trainers and institutions to offer practical solutions to firms wishing to improve their purchasing and supply chain management and operations."

    She adds: "The trainers feel part of this global, international network. Training is often a totally new world for them. They need to learn the skills and have the tools to communicate their knowledge and experience. This is true for those from local small and medium-sized companies right up to large multinational corporations. But they are enthusiastic and committed."

    A system of professional recognition

    Professional recognition encourages participants to complete all of the modules and gives graduates increased credibility both within their companies and when looking for jobs. International exams leading to an International Certificate, Advanced Certificate and Diploma in Purchasing and Supply Chain Management, based on ITC's materials, are now available for institutions wishing to participate. A group of Thai participants sat the first set of exams in March 2002. Since then, exams have been organ-ized every six months.

    The International Diploma was launched in Asia; since then, various institutions in Africa and Latin America have also signed up. A separate exam in Spanish is being offered in Latin America as of this year. Exams are taken in the home country, where network partner institutions make all local arrangements. These tests, which are taken by modules, are developed and marked by an International Examination Panel supported by ITC and consisting of high-level professionals from all continents.

    To date, 2,653 module exams have been taken by participants. Institutions in 22 countries are offering courses to prepare for the exams and more are expected to join in. As from November 2004, the exams will also be offered online.

    There is no free lunch

    All the national partner institutions use their own resources to participate in ITC's Modular Learning System programme. The cost of the start-up pack is US$ 2,500 for developing countries and US$ 1,500 for least developed countries. All income generated is used to cover the costs of production, distribution and further development of the materials.

    "ITC does not support the local training programmes financially, which means that the training delivered by the partner institutions is entirely self-sustainable," explains Mr Smith-Gillespie. "By paying for the course, there is a commitment to use it. This ownership is one of the keys to the success of the programme."

    Training is offered at a minimum cost and with support from the network. ITC provides technical assistance in the production and regular updating of the course materials. It trains the trainers and gives them guidance on how to tailor the materials to local specificities. ITC supports the global network of local institutions and trainers, particularly through its portal web sites.

    ITC has set up and managed the professional certification programme with the aim of making it progressively self-sustaining.

    Sharing the knowledge

    Many partner institutions and their trainers have been developing supplementary local materials based on ITC's training, such as case studies and country-specific modules to tailor the training. They have also translated the course materials into Spanish and Chinese at no cost to ITC, which enables the course to be distributed to others in these languages.

    As a result, businesses and their professional staff now have access to high-quality training in purchasing and supply chain management, particularly in less advanced countries where no such training was available before. This allows local companies to reinforce their capabilities in a management area that is critical to their competitiveness and export delivery performance.



    New purchasing strategies cut costs

    Chatchai Supprapruth is the first candidate to have achieved the Purchasing and Supply Chain Management Diploma, after passing 15 exams since 2002. Today, he is the supply manager at Gate Gourmet (Thailand) Limited, an airline caterer. Mr Supprapruth was handed a formidable task when he took up his position in 2003: to optimize the company's purchasing and supply of food and non-food related items to increase its competitiveness in a declining market, further dampened by the severe acute respiratory syndrome (SARS) outbreak in March 2003.

    How best to deliver high performance to customers at the lowest possible cost? To answer this question, Mr Supprapruth undertook a thorough review of his company's supply situation. He learned through ITC's training, offered by the Purchasing & Supply Chain Management Association of Thailand, that a periodic review of each purchase item is critical.

    He applied the Supply Positioning Model to reduce supply costs, leverage purchases with suppliers and guarantee availability. This model helps to establish various strategies for separate items to be purchased, depending on their cost. It also helps determine supply risk and impact on a company's operations. This is particularly important in the airline catering industry, where requirements change constantly. By implementing this process, he achieved significant savings in 2003.

    He also applied a standard model to analyse inventory and to prioritize actions aimed at reducing inventory levels and costs while maintaining service to customers. This allowed him to solve the problem of excess stock resulting from a lack of inventory monitoring and the drop in passenger travel in the wake of the SARS outbreak. By May 2003, results were already evident.

    "The achievement was a dramatic improvement of performance measured by a reduction in stock," he says. He expects continuous improvement to optimize inventory levels under dynamic and changing business conditions.

    Finally, he applied the "Make or Buy" strategy, which allowed him to determine whether it was more cost-effective to continue making items in‑house or to purchase them externally. Outsourcing carrot-based food products from a new supplier helped Gate Gourmet save 6% on these items alone.

    Effective and efficient supply management worked for Gate Gourmet: it achieved total savings of more than 16% on its supply expenditures. These savings in supply went directly to the company's bottom line. Being a catering company, supply costs make up a large part (at least 60%) of its total costs. If it were making a profit of 15%, a 16% saving in its supply costs would have meant an increase in profit of 64%. To achieve this same increase in profit through sales, the company would have had to expand its sales by 64%.

    Mr Suppraputh's efforts demonstrate how improved purchasing and supply chain management can lead to substantially enhanced company competitiveness and profitability.



    ITC training delivers benefits

    A purchasing specialist trained under an ITC-supported programme in Tanzania, Abdi Athuman describes his improved skills: "It has helped me to achieve more economical purchases by improving my knowledge of the supply chain and by specifying our supply requirements better." The training, he adds, has allowed him to focus on improving relationships with suppliers and to plan requirements jointly with his company's user departments to avoid urgent purchases.

    One of the ITC-trained trainers, Professor Augusto Argüelles at Ateneo University in the Philippines, is convinced that effective purchasing and supply chain management can help his country. "We need to optimize what little money we have so we can buy more books, build more classrooms and purchase medicines," he says.



    Writer: Dianna Rienstra

    Organizations mentioned in this story:

     

    Related ITC links:

    Purchasing and Supply:

    http://www.intracen.org/ipsms/