Raising the Bar: Driving Business Value Through Supply Chains

Speech delivered at CIPS Nigeria Summit, 17 April 2019 at Radisson Blu Hotel, Lagos 

Good morning friends and fellow members of the CIPS.

It is indeed a great pleasure for me to be here today in Lagos, and I appreciate the honor extended to me by the Nigerian Branch of the CIPS.

It is good to be back in Nigeria, especially at this momentous time. Congratulations to Nigerians on the recent elections adjudged by many independent observers as reflecting the will of the people in most places despite not being a perfect process. It is easy whilst watching cable networks from afar and mainly seeing a few dozen of booths with issues to miss that there were over 100,000 other booths without issues. Kudos to Nigerians for the democratic journey so far over the last 59 years, and we must not forget that the USA for example has had a 240-year journey.

Congratulations also to Mr. President for the renewed mandate and opportunity to take the country towards its rightful place in the comity of nations. We must all work hard to change the narrative about Nigeria as a country whose citizens show individual brilliance but are unable to produce nation-builders willing to put national aspirations above personal, religious, or tribal interests. The Government must respond to the yearnings of the citizenry who are eager and restless with a can-do spirit and are waiting for the right environment to flourish and take hold of history. Mr. President let the giant rise and make its mark in the world.

Congratulations also to the organizers of this Summit and it is pleasing to see the Nigeria Chapter of CIPS moving forward I wish the Chapter Executives success in their determination to make a difference. I notice that the agenda of this summit includes a session on Digitalization, the Role of Women, and Building the Nigeria Economy. These are indeed very topical issues and I look forward to listening to some of the speakers and discussants to learn more. I am also excited by the atmosphere of this event and have met many new faces here today and quite happy to see the young talents and females coming into the profession.

The conference theme reminds me of my CIPS Presidential theme of ‘Raising the game; Raising Your voice” and my valedictory speech on 30 October 2015 that I had titled A Dream I Leave You With. I had recognized the seismic change of our profession through our enhanced role; our rising profile and our transformation; from a back-office function to a strategic one and that we have come a long way since 1932 when the Purchasing Association was formed. My dream remains that with the value that we can bring, the time is to come when procurement will be in the lead on the agendas of global bodies, and that several CEOs and Government Ministers would be drawn from the profession. The conference theme provides us another opportunity to reflect on what would it take for such a future?

Many things have changed since when I was CIPS President. The geopolitical scene for one is totally different. Things have gotten a little bit hectic, wouldn’t you say? Since then we have seen trade wars between the USA and China, two of the world’s biggest markets. We have seen the US and Iraq sanctions come back into effect and once again impact the oil prices. The US and North/South Korea relationship is shaping differently, and the Syria/ISIS war thankfully is coming to the end of a phase. We have seen Russian foreign interference in US elections through the power of the internet and we have seen the drama of Brexit, where the United Kingdom is struggling for its “Independence” – can you believe that?

These are indeed VUCA times (Volatile, Uncertain, Complex, and Ambiguous) and the world is also changing faster than ever seen before between generations (e.g. driverless cars where driving licenses may become extinct, automated shops without attendants, 3D printing in place of manufacturing parts, houses, human parts, etc.).

Whilst one may think that the pace of these disruptive changes will vary depending on each country, which to a large extent is correct, it is important to understand that the opportunities to leapfrog are also endless as we saw here in Nigeria with telephones and mobile phones, and in my industry, we are also witnessing the remarkable pace of progress made in renewable energy in the last decade.

These new cutting-edge disruptions will bring new realities and speed into supply chains, however irrespective of how the supply chain looks and becomes, adding value to such supply chains will remain a constant opportunity, and being able to leverage creativity and innovation will be key in taking costs out of the supply chains and driving for value from better-managed supply chain structures.

I would have loved to go on about VUCA times and the opportunities, as they excite me, but let me not steal the thunder of the sessions on Digital.

So back to the summit theme, let me start by reflecting on what value is in a Supply Chain context?

Procurement accounts for 30% of the annual GDP of many countries and 80% of spend of most organizations. Supply chain value is about maximizing the spending of a public or private organization and I will describe supply chain value from three perspectives (a) Tactical Value (b) Strategic Value (c) Beyond Enterprise Value

Firstly, Tactical Supply Chain value is about maximizing the current supply chain by delivering the basics of obtaining goods and services timely and at the lowest costs of ownership (not price) and saving money. It is about ensuring decisions are based on life-cycle costs with consideration for social and environmental risks and benefits. It is about minimizing or eliminating stocks whilst delivering goods and services just in time. It is about extending influence within an organization to design projects or demand for goods and influencing specification. It is about sourcing from low-cost countries and partnering with suppliers as the preferred customer of choice. It is about category management, standardization, and facilitating co-creation across the enterprise. It is built on a foundation of value for money, curbing wasteful and maverick spending, and bringing transparency and high ethical behaviors. It is a must-do!

Secondly, Strategic supply chain value is about the disruption of the existing supply chain to uncover new hidden value and create strategic impact. It is about bringing new technology, enabling innovations, creativity, and new ideas and products into the organization to increase productivity, products, competitive advantage, and speed to market. It is about reengineering the way products or services are delivered and in the current 4^th industrial revolution, strategic value is about taking advantage of Big Data, the Internet, Robotics, 3D printing, artificial intelligence, etc. It is about bringing new ideas and products into the market sometimes through working with suppliers. Because of its involvement with suppliers, many of who are working on innovations, but require launching platforms, Procurement can bring in ideas and enable the development of innovation for the success of companies.

Thirdly, Beyond Enterprise supply chain value extends beyond the organization, customer, and supplier and encompasses the ecosystem as it flows into the larger society and we must always think of how our supply chain activities can positively impact society. It is also about addressing challenges faced by society including employment, poverty, GDP growth, infrastructures, and even global issues such as climate change. For example, in many African countries, most goods are still imported, which means local manufacturing remains in its infancy. It is about creating strategic impact by enabling the development of local capacities to create employment and stem capital flight. We must encourage sustainable practices, supporting environmental, social, and economic sustainability and positive discrimination for disadvantaged groups (women, handicapped, etc).

Permit me to share some examples in these three value areas to bring them to light.

On Tactical supply chain value, take the example of the UK Government’s Public Procurement Reform Program established in 2010 which saved £20billion per annum in 2015 through a radical overhaul of central government, implementing management information and spending controls, helping government to act as one customer and with one plan for synergy to leverage and lower expenses, eliminating wastes and inefficiency in large scale projects.

Here in Nigeria the Bureau of Public Procurement responsible for the monitoring of public procurement and driving efficient procurement reported in 2016 to have saved N680 billion through avoiding waste, blocking leakages, increasing productivity, and recently deploying a price checker to harmonize prices and ensuring transparency.

Huge sums of money can be saved in existing supply chains by eliminating wastes, consolidating demand to leverage supply costs, and having different strategic differentiated approaches including automated procurement, Just in Time, etc.

On strategic supply chain value, take the example of Apple’s iPod which was released in 2001 after Apple decided to develop smaller digital music players with better user interfaces. Apple had earlier through its Suppliers' meetings in Japan discovered the Toshiba hard disk drive and purchased its rights and developed the software and user interface using external suppliers PortalPlayer and Pixo. This was the key to unlocking the mega iPod solution for digital music that puts “1,000 songs in your pocket”.  The iPod gave an enormous lift to Apple's financial results doubling sales revenue to $ 3 billion. And a 700% growth in earnings. This is what a strategic supply chain can deliver.

Apple's supply chain management is also obsessed with outsourcing its production line to other countries, especially Asia (e.g. Taiwan), not because of cheap labor but because it could produce much faster, on a large scale, and with flexibility. The multiple-supplier approach ensures risk diversification and the ability to react faster, it enables capacity management especially closer to the emerging demands of China and India. It also enabled them to leverage to bargain and enables supplier innovation. All these come with some risks such as labor conditions, quality, etc. which must be managed but is a strategic value-driven approach to its supply chain.

On Beyond Enterprise Supply Chain Value, take the example of Shell Nigeria and Caverton, whereby in the 50 years of the oil industry in Nigeria, helicopter services had been a monopoly for foreign helicopter companies. In 2010, following technical progress by Caverton including gaining international partnership, Shell Nigeria awarded it a $ 600 million helicopter contract, the first time within the Industry. Shell Nigeria saw the opportunity to enable the creation of local capacity by supporting the local Company to own its own helicopters rather than lease from foreign owners. Shell advanced a $ 100 million loan to Caverton Consortium to enable them to buy 6 brand new Augusto AW 139 helicopters which the company has since paid back by 2017. With this as a catalyst, Caverton today owns several such high-powered helicopters and employs several hundreds of Nigerians, and is now providing helicopter services to several other International Oil Companies both in Nigeria and in other African countries at much lower prices that the previous monopolies.  The company is also today an Internationally Authorized Service Centre for helicopters. What an impact.

These are some of the business values that can be created through supply chains.

As I start to conclude, I will like to leave you with a few things to reflect on

1.    United Nations estimates $1.3trillion is lost in supply chains. The staggering figure highlights the size of the value on the table. Do you know what value is lost in the supply chain of your organization and have you discussed it with your organization leadership?

2.    The explosion and fast-changing technology landscape in digital, analytics, and artificial intelligence is a huge opportunity to disrupt supply chains and reduce costs and speed of delivery – how well are you aware of the digital potentials and how is this being deployed in your organization?

3.    The average GDP per capita of African countries is about $5,000 with only 6 countries with a GDP per capita above $10,000. What is the contribution of your supply chain to changing these challenges?

4.    We have varying supply chain practices, in developed and developing countries, and public and private sectors. Whilst game-changing value is seen in developed countries, many developing countries still practice rudimentary procurement practices – do you know what best practices are for your supply chains and are you deploying such?

5.    The image of procurement is bedeviled and synonymous with corruption, bribery, capital flight, and unethical practices as seen in prosecutions and huge fines of individuals and companies such as Halliburton, Siemens, and Panalpina – how transparent is your supply chain and how well are you ensuring leakages are unearthed and blocked?

These are indeed interesting times with huge opportunities to make a difference and we need to continue to Raise the bar!

Thank you for listening!

Babs Omotowa

Shell Global Upstream Vice President (S&E)

(Former Managing Director/CEO, Nigeria LNG Limited)