Procurement risk management when the pips squeak

Achieve sales of 5m of launching iPhone 5. Share price reduced by 1/50^th. 5,000 police officers  called in for 10 hours, to supplement the existing 1,500 security guards, in order to quash a riot of 2,000 workers at your sole assembler's manufacturing plant. That’s quite a weekend. To make matters worse the riot was caused as a result of a dispute between one of the security guards and a worker – was it a contract security firm?  Sounds like an unbelievable case study exam question but that was last weekend!


Of  course the warning bells must have been ringing earlier when the supplier installed nets around its factory in an attempt to reduce employee suicides.
The volume of those ringing bells must have been deafening when it was learnt that the supplier’s new employees were being asked to sign a statement that they would not commit suicide. 


Foxconn, with a workforce of 78,000, is the world’s largest contract supplier of electronic goods – yes, they are the iPhone5 sole assembler, therefore Apple are strategically dependent on it for the manufacture of iPhones. The estimated cost of the components in the iPhone5 are estimated to cost $199 (for the 16GB model) while it sells for $650. Microsoft and Dell are also big customers. What happens in Taiwan does not stay in Taiwan.

This latest saga is not unique by far.  Fresh in the minds of readers will be the G4S Olympics debacle and hopefully my blog on not casting the first stone.  

Will Apple be scarred by this experience and punished by the market?  I doubt it.  However, what is clear is that supply risk management is not a well practiced theory.  Unfortunately, we can also expect supplier risk to increase in the current financial climate. 

Tagging value for money and effectiveness

I am absolutely astounded that it has taken 13 years and almost £1bn before someone asked the question, 'does electronic tagging of offenders deliver the desired outcome?'.

Now a Think Tank, Policy Exchange, appears to have actually given the question some thought.  Their conclusion, in a nutshell, is that tagging isn't cost effective, and apart from those tagged, the only other winners are the two contractors providing the service.  In addition it has now been highlighted that a new £3bn procurement process in underway for the next deliveries.

To me there are some interesting questions for procurement which are worth reflecting on:

Could supplier blacklisting backfire?

We have been aware of the UK central government plan to blacklist poor performing suppliers for some time. Today a new twist was introduced when the CBI, who frequently support procurement reform, entered the discussion and made clear they do not support the initiative.  The CBIs director general said:

"It's an unhelpful development, from our point of view. In 2010 the government came to suppliers and said, 'we want you to take a haircut and we want you to share your ideas'. We've taken a cut in margins and offered our intellectual property up to government to find better ways to operate more efficiently and this is what we got."

It is surprising given the traditional closeness of CBI to the government that they were not consulted upon and contributed to the development of this policy.

But what is more surprising is that the government CPO, Bill Crothers, believes this is the first time a company's record has been taken into account in the public tendering process.  Quite frankly I am both mystified and concerned

Unveiling a Vision of UK Industrial Strategy

Last night I was fascinated by the wonderful spectacle of a conservative minister and a labour shadow minister slugging it out on Newsnight over which of the two had the most effective approach to using procurement and supply chain management as part of UK industrial strategy.  Who could ever have imagined such a scene. Of course this could be viewed as good news for the profession but will it really cascade further so that others can see procurement as strategic?

Anyway, last night was really just the prelude to the Business Secretary's announcement today of his vision of an Industrial Strategy.

A number of the initiatives proposed have been advocated over the last year in this blog, so it would be difficult for me to disagree with them. However, what I to put the spotlight on is the proposed '[Reform of] government procurement to maker sure that businesses have confidence to take long term investment decisions'.  Regular readers will recall that we addressed a similar topic last November, at that time it was revolutionising public procurement'.  So just in case you missed the headline, here's what Vince is alleged to have said: