Predictions for 20134C’s resident experts consider the challenges ahead

Cost Leadership and Economic UncertaintyHow businesses are managing to thrive in a challenging environment

Effective Supplier Relationship Management Is SRM a waste of time?

4Thought Cutting to Grow

Editorial

Michele Martinelli

Content Executive

Email: michele.martinelli@4cassociates.com

Tel: +44 (0)798 197 1710

Switchboard: +44 (0) 207 605 1600

www.4cassociates.com

Twitter: @4cassociates

LinkedIn: 4C Associates Company Page

4Thought / 1

The challenging economic climate has seen a number of companies struggle to achieve growth or even remain profitable. Despite this, some leading busi-nesses have been able to flourish.

By making cost leadership a cornerstone of business strategy, organisations have been able to drive growth through cost transformation. Recent examples include BT, which cut operating costs by 10 per cent and consequently saw pre-tax profits rise by 8 per cent, and Siemens, which estimates that integrat-ing supply chain management activities into its business operations will save €3bn by 2014.

At 4C we believe there is always a way for the very best companies to thrive, regardless of the global financial situation. Over the past 12 months we have worked with a number of clients from various sectors and, through strategic cost transformation, have delivered cost reductions of 8 per cent on average. This is a trend we are confident we can continue in 2013.

I hope you enjoy our predictions for the coming year, as well as our collection of articles and write-ups, and do get in touch if you would like to discuss any of the issues raised.

Ed Ainsworth

Managing Director, 4C Associates Edward.Ainsworth@4cassociates.com

Foreword

2 / 4Thought

Contents

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P r e d i c t i o n s

2013 Predictions

4C’s resident experts consider the challenges ahead

H o t To p i c s

Deadline Day Buying — Lessons from the Premier League

Frugal Innovation in Healthcare

I n s i g h t

Cost Leadership and Economic Uncertainty

How businesses are managing to thrive in a challenging environment

Ro u n d t a b l e

Effective SRM: A Win- Win Situation?

The value behind working closely with suppliers

C a s e S t u d y

Brakes

Brakes and 4C Associates work together to drive up margin through an indirect cost reduction programme

Re v i e w

Jugaad Innovation

A look at Navi Radjou, Jaideep Prabhu and Simone Ahuja’s guide to rediscovering innovation in the Western world

Events Listing

Our 2013 event listing

About Us

Who we are and what we do

4 / 4Thought

Prediction one: Cost Leaders will continue to set the pace

With slow growth being forecast throughout much of the western world, companies which adopt a cost leadership approach are those most likely to succeed. This strategy, which entails becoming the lowest cost producer in an industry, for a certain quality of product, has been successfully adopted by a number of companies. Amazon, BT and Whit-bread are all examples of industry cost leaders which have been able to thrive through innovative cost management. As the economy con-tinues to stagnate, cost leaders will again show other companies how to achieve growth in challenging times.

Ed Ainsworth

Prediction four: Onshoring will become in-creasingly attractive

A rise in salaries in Asia, coupled with a global surge in fuel prices, will force companies which have moved func-tions offshore to reconsider their options. In parallel to these developments, many western nations have begun implementing measures to make onshoring a higher value proposition. One example is the “Patent Box”, a tax reduc-tion scheme which will come into force in the UK in 2013 and has already helped secure investment from GlaxoS-mithKline. The situation has already changed to the extent that Taiwanese iPhone manufacturer, Foxconn, is consider-ing opening plants in the USA.

Rob Lees

Prediction two: Corporations will align cutting costs and carbon emissions

Businesses will again look for areas where they can improve their envi-ronmental footprint whilst cutting costs. ‘Green’ initiatives, which had previously moved down the agenda as companies focused on short term profits, will re-emerge as custom-ers begin asking more questions about environmental compliance. In the UK, new regulations announced by the Deputy Prime Minister, will see all listed companies obliged to include emissions data in their an-nual reports from April 2013. These measures will further intensify the spotlight on corporate carbon emis-sions.

Robin Agarwal

Prediction five: The rise of the corporate app

With IT departments grappling with security and man-agement issues arising from employees working from personal devices, mobile computing is without a doubt high on the list of priorities for 2013. A key trend will be redeveloping corporate IT applications to exploit the op-portunities offered by mobile devices. The dominance of Windows has already begun to fade and as IT functions enter a post-PC era they need to offer support for iOS and Android platforms. New markets will emerge, such as the corporate app store and cloud service brokers. IT depart-ments will increasingly need to develop an enabling and coordination capability, in addition to the traditional com-mand and control model.

Ian Lund

Prediction three: Online delivery models to change drastically

2013 will be the year in which the unsustainable “free home delivery” model is dropped by many online retailers. Faced with rising demand and fuel prices, retailers have found themselves making deliveries at a loss. Research has shown that most customers are unwilling to cover these costs, meaning retailers need to explore new delivery strategies. Examples include Amazon’s collec-tion lockers and Tesco’s Click and Collect system.

Craig Bunker

2013 Predictions

Predictions

4Thought / 5

Prediction eight: Low inflation and higher prices

In 2012, the UK experienced a period of

very low inflation. The Bank of England

has stated that in 2013, it expects infla-

tion to remain around 2 per cent, but

estimated that there is a 30 per cent

probability of inflation rising above 3 per

cent. The current economic situation

presents limited opportunities for com-

panies looking to grow with the market.

Many businesses have been keeping their

prices low for a long period of time, but

are now coming under increasing cost

pressure. As a result of this, a number of

companies will be forced to raise prices.

This will prove difficult for sellers, who

will need to tread carefully against strong

resistance. Buyers will need to focus on

implementing robust processes to miti-

gate potential price increases.

Jeremy Smith

Prediction six: Cross-sector projects and col-laborations will enable companies to access the next level of savings

Despite the current economic climate there remain many opportunities for businesses to innovate and work togeth-er. 4C research has shown that companies are increasingly willing to discuss mutually beneficial collaborations. This approach is particularly relevant in terms of logistics. In this sector a joint strategy can deliver savings through shared vehicle utilisation, reduced labour costs, decreased carbon emissions and technology deployment. Obtaining partner buy-in has often proved to be a stumbling block, however, as the financial situation remains challenging, 2013 should see a rise in collaborative projects.

Tina Greer

Prediction nine: Traditional shopping outlets will adapt for a new breed of consumer

Faced with the phenomenal growth of

online retail, traditional shopping outlets

will continue to lose market share. Studies

have found that British customers spent

an average of £1,083 on internet shopping

in 2011. This represents an increase of 14

per cent on the previous year. 4C predicts

that the number of consumers choosing

to buy online will rise by a similar number

in 2013. This growth will be in part fuelled

by customers shopping via mobile devices

and the adoption of new delivery chan-

nels, such as Click and Collect. 2013 will

see the beginning of shops being used as

depots and “show rooms” for consumers

looking to try before buying online. Retail-

ers and distributors will need to drastically

change their cost model.

Helen Gallimore

Prediction seven: The Eurozone crisis to continue

The tail end of 2012 saw a number of small but positive signals emerge from the Eurozone economy. In Novem-ber, for example, the rate of contraction in the Eurozone diminished, and the Purchasing Managers’ Index rose by 0.8 to 46.5, compared to the previous month. Despite this limited progress, weak consumer demand, coupled with a lack of confidence in business and a decline in global trade, will see the Eurozone economy remain in decline throughout much of 2013. Britain is likely to be the fastest growing of Europe’s largest economies and the European Commission’s prediction of 0.9 per cent growth in 2013, is in line with 4C’s estimates.

Rohit Moudgil

Prediction ten: Barcelona will win the UEFA Champions League

Once again it is hard to look past Bar-celona for the title of European cham-pions. With a team boasting the likes of Lionel Messi, Andrés Iniesta and Cesc Fàbregas, the Catalan giants are, on paper, the best side on the planet. Their sometimes entertaining, sometimes nauseating, style of football has seen them pass their way through most of the world’s top defences. Despite this, a defeat to Real Madrid in the Spanish Super Cup and Chelsea’s surprise win in last year’s semi-final, is evidence that they are beatable. Other possible contenders include Spanish rivals, Real Madrid, German power house Bayern Munich, defensively frail Manchester United and dark horse Juventus.

Michele Martinelli

6 / 4Thought

As several Premier League foot-

ball teams have recently con-

firmed, timing plays a key role

when it comes to determining

the balance of power between

buyers and suppliers. Suppliers

will be quick to take advantage

of any time related issues facing

a buyer. However, by employing

effective contingency planning

measures and ensuring alter-

native supplies are available,

buyers can turn their time con-

straints into an advantage.

Maintaining a Strong Position

There are several strategies which a

buying party can employ to ensure

they do not find themselves in a weak

bargaining position. A key element

is ensuring the business model is as

flexible as possible. An agile strategy

should take into account advanced

planning, which considers fairly

predictable future cost changes, as

well as rolling forecasts and succes-

sion planning, which allow a business

to react to changing market condi-

tions. Companies can also leverage

elements such as contract duration,

Deadline Day Buying —

Lessons from

the Premier League

By Jeremy Smith

Hot Topics

4Thought / 7

brand, payment terms and IP to sup-plement pure financial consideration.

One example is Luka Modric’s trans-fer from Tottenham Hotspur to Real Madrid. The London club resisted initial bids and was able to obtain a much higher price. On the down-side, Tottenham found themselves in a situation with four days to sign a replacement and the very public knowledge that they had just banked a considerable fee. This information was leveraged against them as they looked for a replacement.

It is essential to carry out contin-gency planning to avoid delays and

compromising options. This includes having alternative suppliers on hand in case of incumbents stalling. This is one of the reasons teams with large financial resources, wary of being exploited in a supplier dominated and regulated (Financial Fair Play) market, are investing in youth development to provide alternative supply options.

Being aware of a supplier’s internal workings will enable a buyer to take ad-vantage of certain situations, including monthly sales targets and production uptime. Key to deliver this is control of information. Those who have the upper hand in terms of knowledge will usually get the better deal.

Timing Negotiations

Buyers who do not effectively plan for

the future find themselves with little

option but to pay over the odds. Liver-

pool are a case in point when in 2011,

having received £50m in transfer fees,

spent £35m on deadline day for a

player now out on loan. Beginning ne-

gotiations well in advance of deadline

day, having supply alternatives, pre-

venting contract information leaking

into the market, and long term plan-

ning, provides the buyer with several

options and real bargaining power. As

time runs out, so does a buyers ability

to negotiate appropriate contracts.

8 / 4Thought

Frugal or “Jugaad” innovation

is a concept which is be-

ing embraced by businesses

across various sectors. One

aspect of this movement,

which is particularly relevant

to the healthcare sector, is

producing low tech alterna-

tives to more complex prod-

ucts.

Companies such as General Electric and Siemens, which produce some of the globe’s most expensive and com-plex pieces of medical equipment, are looking to develop simpler devices which will drive growth in emerging markets and recession hit countries.

Adapting to Demand

GE Healthcare is one of the com-panies currently leading the way. The British based business, which is owned by General Electric, has pio-neered the use of mobile ultrasound and electrocardiogram scanners in less developed nations. Mindray, a Chinese manufacturer of medical de-

Frugal Innovation

in Healthcare

By Edward Ainsworth

Hot Topics

4Thought / 9

vices, has focused on reducing costs and as a result can deliver scanners and portable electrocardiographs at one tenth of the cost of their Western counterparts.

In the past these innovations would rarely make it to Western markets, where insurance companies and the state shoulder costs. However, as the economic environment becomes increasingly difficult to navigate, opening the doors to these less expensive products is becoming a necessity. In the United States alone, medical spending per head has tripled since 1990.

Delivering Cost Effective Performance

As it stands the healthcare sector is significantly behind other industries in terms of cost effective innovation. There are several reasons for this, including copious levels of red tape and a lack of competitiveness driven by state and company funded health-care. Despite this, times are changing and adopting a more frugal approach will allow the sector to drive growth in a challenging environment.

10 / 4Thought

What is Cost Leadership?

In his 1985 book, “Competitive Advantage: Creating and Sustaining Superior Performance”, Michael Porter identifies three generic business strategies. These approaches can be applied to products or services across all industries, and in companies of varying sizes. One of these, “Cost Leadership”, is a strategy based on being the lowest cost producer in an industry, for a certain quality of product.

A leading company will either sell products at average industry prices to earn more margin than its compet-itors or sell at below industry prices to gain more market share. A cost effective business should also be able to weather any resulting price war whilst remaining profitable.

Businesses Doing it Right

Our research has shown that many of the companies which implemented a cost leadership strategy in 2012, were also amongst the highest performers

in terms of share price. Figure 1 shows

the top 10 FTSE 100 performers by

percentage of share price increase,

during a time when the market showed

no growth. Eight of the 10 companies

incorporated cost leadership at the

heart of their strategy.

The top three all focused on cost as a

major driver for growth.

CRH, a leader in international build-

ing materials, combined a series of

acquisitions with a ruthless cost re-

duction programme. The second topic

addressed in the company investor

management statement, following

notes on trading, is their ‘Cost Reduc-

tion Programme.’ CRH delivered sav-

ings of €150m in 2012 as part of to-

tal programme of €450m (on sales of

€15bn and EBIT of €1.5bn). Savings

came from three major categories:

structural changes (including admin-

istration and production efficiencies),

process changes (including increased

usage of alternative fuels, operational

throughput and yield improvements)

and procurement benefits.

Whitbread, which owns popular

brands such as Costa Coffee and Pre-

mier Inn, has demonstrated that there

is potential to do well during a reces-

sion. By offering relatively inexpensive

food and hotel prices, the group has

managed to continue its expansion

and raise its share value by more than

a quarter in the past year.

Whitbread has effectively imple-

mented the right model at the right

time and taken advantage of the cur-

rent demand for less expensive hotel

and dining experiences. In order to

provide these services in a cost effec-

tive manner, Whitbread has focused

on improving procurement prac-

tices, menu management and labour

scheduling.

A key element of this strategy was

the launch of several ‘Skill Acade-

mies’, which provide training for man-

agers and team members in improv-

ing operational and cost efficiencies.

Another example of Whitbread’s cost

leadership approach is the company’s

use of e-auctions to minimise the

Cost Leadership

and Economic Uncertainty

By Edward Ainsworth

Insight

4Thought / 11

impact of rising commodity prices.

The process allowed Whitbread to

avoid paying a 16 per cent price hike

for a key commodity - potatoes. This

approach saved the company an esti-

mated £400,000 per year.

Hargreaves Lansdown, an online

financial services provider, beat full-

year profit forecasts through tight

cost control and a broad product range. Profit before tax rose 21 per cent to 152.8m pounds, in the year ended June 2012, on a 15 per cent increase in revenue. Cost control was a key contributor to this perfor-mance. Initiatives undertaken include deploying a range of more efficient processes, such as moving much of their marketing online for a higher

return on investment. Net operat-

ing expenses increased 6 per cent

as its efforts to cut rising staff and

administrative costs largely offset the

impact of a 30 per cent increase in its

contributions to an industry compen-

sation scheme.

These examples illustrate the mul-

tiple benefits which companies gain

Source 4C Associates, Hargreaves Lansdown

12 / 4Thought

from becoming cost leaders. Not only do profits increase but so too does share price value. Given the speed that costs can be transformed, our analysis has demonstrated that this is the fastest way to grow share price.

Successful Cost Leadership Initiatives

4C Associates is currently driving a variety of innovative cost transfor-mation projects for several clients. The most recent is Project Flow, a Network Optimisation initiative being carried out to reduce empty miles and increase efficiency within the clients’ supply chain. CAST modelling tool was used to gather all relevant data on ingoing and outgoing trans-port flows from client factories and distribution centres. Geo-mapping techniques were then used to match outbound customer deliveries with inbound raw material deliveries in or-der to leverage the benefits of round trip pricing. Initial savings of 18 per cent were achieved on transportation costs.

Another 4C project, “Bondi”, is a broad brush cost reduction and cash release exercise across all categories, all geographies and all suppliers with spend over £100k. Suppliers were further segmented by their effective impact to business in case of non-supply. Different negotiation strate-gies were then adopted for each dif-ferent segment. The project entailed

requesting a 4.7 per cent price de-crease and harmonisation of payment terms towards the 75 days standard (excluding small businesses).

Driving Innovation

One of the key elements behind a successful cost leadership strategy is fostering a mentality which encour-ages innovation. The best way to reduce expenditure is to look at cost from a different angle. An example of this is a driving school which employs one brand of car. By supplying cars to the motoring school, the vehicle manufacturer is effectively adver-tising its products to every learner driver using the school. In this situa-tion which party should be compen-sating the other?

The airline industry has long been striking profitable deals with airports to keep certain routes open. Ryanair in particular has championed the notion of looking at costs in an in-novative manner. The Irish airline’s business strategy was pioneered by Southwest Airlines and made up of four guiding principles: employ a single type of plane to keep costs down, constantly review overheads, turn aircraft around as quickly as possible and abandon point schemes.

In 2002, Ryanair secured a significant discount on the purchase of 100 Boe-ing 737-800 jets with the option to buy a further 50. With newer, more

fuel efficient planes than many of its rivals, Ryanair was able to charge lower fares and fill planes with pas-sengers, who might not spend a huge amount on tickets but spend profit-able sums on food and hotel reserva-tions.

Ryanair has introduced a number of measures which helped the busi-ness to a profit of €503m in the past financial year. These include, being the first airline to implement baggage charges, working to eliminate the need for check in desks and cutting the weight of its aircraft. Most re-cently the company announced it was examining the possibility of larger aircraft doors, to speed up boarding. In a similar vein, rival airline Easyjet, is to introduce allocated seating in an attempt to secure revenue from hav-ing passengers pay to choose their seats. This consistent search for new ways to transform costs, is the es-sence of the cost leadership strategy.

Seeking out Opportunity

Despite the lack of optimism sur-rounding the current financial cli-mate, several of the world’s leading businesses have been able to thrive. The difficult environment, in which many companies are evolving, repre-sents a great opportunity to review, improve and revolutionise established industry practices. By adopting a new way of approaching cost, businesses can leverage innovative cost leader-ship practices to drive growth.

4Thought / 13

Many companies are unsure of

whether or not they are a cost

leader within their industry. In this

situation the golden rule is: if you do

not know that you are a cost leader,

you almost certainly are not. Figure

2 is an example of a benchmark-

ing initiative which we carried out

for one of our clients. This graph

highlights the importance of moni-

toring competitors and implementing

industry best practice.

Figure 2 demonstrates the cost

per case delivered for a range of

national and regional FMCG prod-

uct distributors. Knowing where

your business stands enables you

to set targets for what you have

to achieve, and forces you to think

‘what do I need to do to be the

leader.’ This analysis also includes

two fuel price scenarios, which help

understand how changing prices

impact different companies.

The reality of the current economic

climate is that growth through

sales will continue to be difficult to

achieve. For most companies adopt-

ing a cost leadership approach and

implementing cost transformation

techniques, represents the most ef-

fective strategy to gain market share

and sustain profitability.

Figure 2. Understanding how your costs compare

Source 4C Associates

14 / 4Thought

With procurement functions

under increasing pressure

to deliver quick win savings,

long term projects such as

Supplier Relationship Man-

agement (SRM) are often

put to one side. In addition,

there is a divide in opinion

regarding the involvement of

buyers in SRM; in some busi-

ness the functions are kept

separate whereas in others

SRM is part and parcel of the

procurement process.

4C Associates brought together sev-eral leading procurement profession-als to discuss the potential benefits of SRM. An animated discussion fol-lowed in which attendees discussed how to define SRM, how much value the process can bring to a company and what represents current best practice.

Defining SRM

A number of attendees expressed contrasting viewpoints as to what constitutes supplier relationship management. One opinion was that whereas procurement was purely interested in contract management and numbers, SRM deals with rela-tionships with people. This claim was debated by several participants.

“I don’t separate SRM from my buyer, I don’t understand why you would.”

Procurement, it was argued, is per-fectly placed to carry out SRM. There is no reason the function should del-egate what is already an important element of its job description. In fact, as the days of “beating up suppli-ers” come to an end, SRM is likely to become an increasingly integral part of the procurement function.

This claim was debated, and it was suggested that due to the recession, it is possible to demand that suppliers lower their prices by 5 - 10 per cent. This statement was tempered by the admission that regardless of the eco-nomic climate, procurement still has a lot to learn in terms of SRM. Sales was put forward as one department leading the way in terms of building relationships. Several attendees called for more SRM training to be given to procurement professionals.

“Until procurement understands the value of asking someone about their holidays, SRM in most companies will enjoy lim-ited success.”

Another attendee added that in his business, procurement is charged with running the SRM process. In his opinion the practice delivered incre-mental benefits to the business but no step changes. He did not view this situation as exceptional and asked if anyone could draw a clear distinction

between good contract management and effective SRM.

SRM vs. Contract Management

“Have there been any revolu-tionary changes in the field since Toyota, almost 10 years ago?”

It was argued that contrary to con-tract management, SRM provides an invaluable opportunity to engage with stakeholders. One attendee explained how a thorough understanding of his supplier’s processes resulted in sev-eral manufacturing procedures being amended. These included increasing the size of batches for dispatch and adding barcodes to certain products. Each change rendered operations more efficient and reduced costs. SRM also facilitates the exchange of best practice solutions.

“At the end of the day there has to be a return on investment for managing suppliers.”

Rob Lees, Managing Partner at 4C Associates, explained how during his time at Vodafone, his team employed a number of systems to drive stake-holder involvement. A key compo-nent of this strategy was presenting awards to suppliers who consistently performed to expectations. These ceremonies not only served to drive spend towards top providers but also allowed suppliers to spend time with senior management. As a result, ad-ditional resources were attributed to

Effective SRM:

A Win-Win Situation?

Roundtable

4Thought / 15

the account and procurement’s profile was raised within the business.

Why Invest in SRM?

One of the principal difficulties in getting approval for an SRM pro-gramme is the seemingly intangible nature of the benefits it delivers. It is procurement’s responsibility to demonstrate the numerous benefits which a well-run SRM programme can produce. These include not only raising procurement’s profile and consequently fostering compliance, but also mitigating risk through more effective supplier management.

“We are trying to use SRM to punch above our own weight. A lot of our suppliers are actually bigger than us.”

The majority of those present were of the opinion that SRM was an impor-tant element of modern procurement. If effectively carried out the process not only allows the function to “up its game” within the organisation but also to shift its reputation from spend restriction to spend management. Sev-eral participants also agreed that keep-ing SRM separate from the procure-ment function could be a real issue.

“[SRM] frames everything pro-curement does and is pivotal to stakeholder engagements.”

There was a general consensus that most buyers would want to be in charge of both sourcing and SRM.

Giving procurement a responsibility beyond the negotiating process for a specific cost, represents an attractive proposition for the function. This will not only ensure increased value from contracts but also demonstrate the importance of procurement beyond simple savings.

“One of my clients has someone whose sole function is to man-age a single supplier. He keeps costs low and ensures the rela-tionship continues to evolve for the benefit of both parties.”

As suppliers continue to struggle, ef-fective SRM will become increasingly important for businesses looking to do well in a difficult economic envi-ronment. A well-run, collaborative process can ensure value for both parties, through lower costs, mitigat-ed risks, increased efficiency, innova-tive methods, increased quality and faster time to market.

Collaboration not Coercion

One of the key points to emerge from the discussion was that there are many different views surrounding what constitutes SRM. Some feel the process is already an integral part of the procurement function whereas others believe it remains a separate entity. The general consensus, how-ever, is that regardless of who cur-rently carries out SRM, it will become an increasingly important element of the procurement job description.

“In business we are used to be-ing cold - we need to start get-ting warmer and are currently looking to hire consultants with people skills.”

Until SRM becomes a two-way de-bate with suppliers as opposed to a one-way discussion, there will be opposing views on how to best carry out the process. Procurement needs to become more accommodating towards the needs of suppliers and recognise that there is value in mak-ing concessions.

Event Information

On the evening of the 4th Octo-ber 2012, 4C assembled a group of procurement leaders from different industries at the St Pancras Renais-sance, Kings Cross. The event was chaired by Ed Ainsworth, 4C’s Manag-ing Director.

Attendees included Ian Claydon-Butler, Global Head of Procurement at Mercury Pharma, Neil Gilbertson, Strategic Sourcing Business Partner at Royal & Sun Alliance Insurance PLC, Dave Magrath, Head of Procurement & Major Subcontracts at Sellafield Ltd, Stephen Pearce, Global Head of Procurement at Arysta LifeScience, Nicki Perrott Head of Procurement at J Sainsbury PLC, Keith Taylor, Head Of Procurement at Odigeo, Nick Wilkin-son, Purchasing Director.

16 / 4Thought

Ian Goldsmith, Group Chief Operating Officer, Brakes Group

“4C proved an invaluable

resource for us and delivered

high quality category plan-

ning, analysis and project

management skills to the

Brakes Team. 4C led from

the front, were enthusiastic

and energetic and played

a key role in shedding light

on an important part of our

business. I would not hesi-

tate to recommend 4C.”

Brakes

Brakes Group is a leading European supplier to the catering industry, with presence in the UK, Ireland, France and Sweden. Brakes oper-ate from 80 locations, harnessing a team of over 10,000 employees. The company supplies more than 10,000 product lines of frozen and chilled grocery products, non-food and catering equipment to the educa-tion, healthcare and travel sectors, as well as numerous restaurants and pubs. Annual turnover is in excess of £2.4Bn.

Business Challenge

Having successfully collaborated on a project in the Direct Spend area, Brakes decided to continue working with 4C Associates on an initiative aimed at cutting costs in the Indirect Spend (Goods Not for Resale - GNFR) area.

Historically, GNFR had not received the same focus as Direct Spend. It had been under-resourced and

Having successfully managed

costs in Direct Spend,

Brakes examine

their Indirect Spend

Case Study

4Thought / 17

sourced tactically, with relatively limited Procurement involvement. The COO’s challenge was to deliver substantial cost savings, under-pinned by a cost effective sourcing process.

Key categories included: Commercial Vehicles, Forklift Trucks, Third Party Storage & Distribution, Fuel, HR Re-cruitment & Systems, Waste, Couri-ers, Telecoms and Company Cars.

Approach

4C’s first priority was to carry out an opportunity diagnostic across the Europe Business Units in order to determine where savings could be delivered. This entailed collect-ing data from numerous internal stakeholders as well as Brakes’ suppliers, in order to present a clear picture of the current situa-tion. Once all relevant information was collated, 4C carried out an in-depth analysis of each category. This was undertaken using 4C’s cutting edge tools.

4C singled out key suppliers, con-tracts and categories for negotia-tion, as well as areas where value could be added and risks eliminated. The findings were presented to the Brakes Board and 4C were asked to go ahead and to implement and deliver the identified savings. A fee structure, predominantly based on hitting performance milestones and the delivery of savings, was agreed.

Results

Key results achieved were:

Strong senior stakeholder engage-ment across all categories, man-aged via highly credible category experts

Significant annual savings deliv-ered across all categories

Payment Terms extended with a high percentage of suppliers to improve working capital

The introduction and embedding of a robust and sustainable sourc-ing process

Life Cycle models created to underpin the management of Commercial Vehicles and Forklift Trucks.

18 / 4Thought

Review

A look at Navi Radjou, Jaideep Prabhu

and Simone Ahuja’s guide to rediscovering

innovation in the Western world

Jugaad is a Hindi word which

refers to an improvised solu-

tion born from ingenuity and

resourcefulness. This concept

forms the basis of “Jugaad

Innovation”, a book which ar-

gues that companies need to

embrace a frugal and flexible

mind-set in order to better

foster innovation.

Authors, Navi Radjou, Jaideep Prabhu

and Simone Ahuja, argue that the cur-

rent method of nurturing innovation

has become obsolete. Simply increas-

ing capital and resources will not guar-

antee new ideas and the authors argue

that Western companies must turn to developing markets for inspiration.

3M is given as an example of a Western company effectively imple-menting Jugaad techniques. This multinational corporation, based in Minnesota, has been releas-ing iconic products since it was founded in 1902. Decades ago, when 3M realised that consumer products rapidly became obsolete, the company implemented a 30 per cent strategy.

This policy states that 30 per cent of revenues must come from new prod-ucts introduced no more than five years ago. Known as the New Product Vitality Index, the policy was further complemented by a 15 per cent pro-gramme. Upon realising that employ-ees were at their most creative in their “spare time”, 3M allowed staff to allocate 15 per cent of their time to a “dream” project.

This revolutionary strategy, which has since been emulated by Google and other successful companies, allowed 3M to quickly respond to an ever evolving market. The business cur-rently boasts a portfolio of more than 75, 000 products, including Scotch Tape and Post-it Notes.

Jugaad Innovation is broken down into six guiding principles:

Seek Opportunity in Adversity Do More with Less Think and Act Flexibly

Keep it Simple Include the Margin Follow your Heart

Each section contains numerous case studies which examine how busi-nesses have successfully applied the principles of Jugaad Innovation. Examples range from the inven-tion of the combine harvester to the more recent release of Aakash, the $60 tablet computer. The current “Jugaad” practices of certain West-ern companies, including Facebook, Renault and BestBuy, are also dis-sected.

Jugaad Innovation provides invalu-able insight into the prevalent form of innovation in emerging markets. It demonstrates how businesses can thrive despite the difficult economic landscape. The authors also highlight how a shift from more frugal prac-tices, such as those employed during the Industrial Revolution in the US, to rigid process, including Six Sigma, have stalled innovative thinking.

In the words of Kevin Roberts, CEO worldwide, Saatchi & Saatchi, “I′ve long argued that the role of business is to make the world a better place. In the new economy, this requires true innovation-bold ideas, gutsy people, and extraordinary actions. Need a new roadmap? Fresh inspira-tion? Accessible tools? It′s all in this remarkable book, Jugaad Innovation. Get a copy for yourself and every member of your team today.”

4Thought / 19

Events

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Effective performance is not dependent on qualifications

Managing risk and driving growth

Effective supplier management can provide step change impact to a business

The changing balance between risk and reward will see a rise in onshoring over offshoring

Lean thinking can transform supply chains, it is not only for manufacturers

Cost leadership through innovation

What is the best commodity buying strategy: roll with the market, hedge or integrate

The only worthwhile measure of marketing performance is seeing growth in the revenue line

There is no justification for keeping the IT function in-house

Collaboration – creating value, not theory

Finance do not value procurement savings

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Contact details:

Petra.Urhofer@4Cassociates.com,

tel.: +44 (0)20 7605 1600,

fax: +44 (0)845 051 8776

Roundtable DiscussionBreakfast Debate

We run a number of thought leadership events throughout the year for friends and clients. If you are interested in attending, please get in touch.

20 / 4Thought

4C Associates has the insight, technology and experience to drive rapid profit improvement.

We offer specialist consulting, technology and managed services to trans-form your costs. We apply industry and functional expertise to deliver exceptional benefits.

Our team works with leading organisations to understand, optimise and reduce costs in all major spend areas, including Direct Materials, Services, Supply Chain and Logistics, Marketing, IT, MRO, HR, Property and FM. We apply deep practical knowledge, combined with process, change skills and the latest software, to deliver reduced costs and increased profits.

Creativity and innovation runs through all of our work. Our agility and flex-ibility is reflected in the commercial models we operate with our clients, ranging from flat fee to full gainshare. We can guarantee your return on investment.

You can reach us at:

4C Associates Ltd, The Kensington Centre, 66 Hammersmith Road, London, W14 8UD

Email: innovate@4cassociates.com Tel: +44 (0)20 7605 1600 Fax: +44 (0)845 051 8776

About

4C Associates

4C Associates Ltd

The Kensington Centre,

66 Hammersmith Road, London,

W14 8UD

Email: innovate@4cassociates.com

Tel: +44 (0)20 7605 1600

Fax: +44 (0)845 051 8776

www.4CAssociates.com