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Project success: the devil’s in the detail

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Gbafmag

All successful projects start with a plan, setting out the objectives, timescales and resources required. But no matter how comprehensive and professional it may be, says Fabio Sona, if it’s not put into effect with great care it will produce less than optimal outcomes.

It is human nature to think that if a project is well enough planned it will look after itself. Clearly, this is a big mistake. As every business executive knows, real success will only be achieved if the project is not only well planned but also expertly executed.Gbafmag

Here I highlight the issues in successful implementation of strategic sourcing projects. The issues are generic, however, and can be applied to projects in all areas of business.

Big sourcing projects usually represent heavy investment of resources and involve most parts of the organisation concerned from sales through to operations. To protect the investment and achieve ROI objectives, top management must make sure that an appropriate savings implementation strategy is set up. Executed properly, this will ensure successful outcomes including cash benefits.

In both direct and indirect procurement categories  —  items including raw materials that are part of the production process and other goods and services that support the business generally   —   some key aspects emerge as critical to a successful implementation.

First, an effective approach to implementation must be aligned to the objectives of the business as a whole and, specifically, in line with the projections it makes in terms of future performance.

Potential savings are usually based on a projection of future volumes of purchased components, for example. Due to volatile market conditions and customer behaviour, though, demand for finished goods can vary significantly from year to year and the mix and volumes of purchased components can vary too.

The implementation strategy must address such volatility, especially in direct categories, for example, where the component qualification process might be resource and time-consuming.

Effective project management is the key to ensuring consistent savings implementation across the organisation. Particularly in large organisations with a range of categories to implement and the involvement of a number of departments and business stakeholders, a coordinated effort is required to make sure that workstreams run consistently and on time and that benefits are properly accounted.

A programme manager who coordinates several implementation plans, runs progress meetings, sets priorities, reports to the CEO and manages potential clashes among workstreams or organisational issues is necessary. Project management tools and techniques must be deployed and integrated with a proper internal communication strategy.

The best candidate for this role is normally the chief procurement officer or someone belonging to their staff. It is also good practice that Procurement and Finance together set up a benefit tracking tool to measure the effect of the savings implementation effort. Finance would normally run the tracking tool.

When it works best strategic sourcing is cross-functional: procurement ideally works alongside a range of other functions to put it into effect successfully. Given this, it is crucial to bear in mind that implementation, often addressing several categories, can substantially increase the workload of the whole organisation while the business attempts to proceed as normal. This has the potential to create disruption.

Two elements need to be addressed. First, it is crucial that the organisation as a whole is committed to the project and understands the benefits. A top-down approach should ensure the right priority is given to the implementation phase. Sponsors such as the CEO, directors or VPs need to give the right message about prioritisation to the whole organisation even if it would appear to clash with the day-to-day business.

A proper communication strategy must be in place. Keeping strategic objectives clear and motivation high is essential to eliminating any potential “can’t do/it’s too difficult to change” attitudes.

In addition, responsibilities must be clear. Category leaders in the procurement organisation who manage the sourcing process upfront are the best candidates to take the lead of a category savings implementation, acting as programme or project managers.

Because conditions change quickly, a savings implementation strategy needs to incorporate potential new scenarios in a pragmatic, agile approach.

A multinational company in the manufacturing sector, for example, took the strategic decision to enter new markets in the Far East and the developing world and to move production tofacilities nearer to the region.

However, the change in strategy was not properly analysed and urgent action had to be taken to enable the supplier base to adjust to the new scenario. Agreements with suppliers to cover delivery of goods to different regions had to be renegotiated with new terms and conditions and a quick tender launched for certain key components. The financial implications of such major readjustment in terms of management time and organisational disruption were clearly substantial.

Protecting return on investment and maximising the benefits of a strategic sourcing programme is imperative for every CEO as well as for senior procurement managers and the financial officers who must protect the company balance sheet. It is not enough to set a good strategy: the way it is implemented makes the difference.

Fabio Sona is Principal at procurement consultants Efficio

www.efficioconsulting.com

Business

Oil prices steady as lockdowns curb U.S. stimulus optimism

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Oil prices steady as lockdowns curb U.S. stimulus optimism 1

By Noah Browning

LONDON (Reuters) – Oil prices were steady on Monday as support from U.S. stimulus plans and jitters about supplies competed with worries about demand due to renewed lockdowns to prevent the coronavirus from spreading.

Brent crude futures for March rose 7 cents, or 0.1%, to $55.48 a barrel by 1210 GMT. U.S. West Texas Intermediate crude for March was up 5 cents, or 0.1%, at $52.32.

“Sentiment was buoyed by expectations for a blockbuster coronavirus relief package … (but) the tug of war between stimulus optimism and virus woes is set to continue,” said Stephen Brennock of broker PVM.

U.S. lawmakers are set to lock horns over the size of a $1.9 trillion pandemic relief package proposed by new President Joe Biden, financial stimulus that would support the economy and fuel demand.

European nations, major consumers, have imposed tough restrictions to halt the spread of the virus, while China reported a rise in new COVID-19 cases, casting a pall over demand prospects in the world’s largest energy consumer.

Barclays raised its 2021 oil price forecasts, but said rising cases in China could contribute to near-term pullbacks.

“Even though the pandemic is not yet slowing down, oil prices have good reasons to start the week with gains,” said Bjornar Tonhaugen from Rystad Energy.

Supply concerns have offered some support. Indonesia said its coast guard seized an Iranian-flagged tanker over suspected illegal fuel transfers, raising the prospect of more tensions in the oil-exporting Gulf.

“A development that always benefits prices is the market turbulence that conflicts create,” Tonhaugen added.

Libyan oil guards halted exports from several main ports in a pay dispute on Monday.

Output from Kazakhstan’s giant Tengiz field was disrupted by a power outage on Jan. 17.

(Editing by David Goodman and Edmund Blair)

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Dollar steadies; euro hurt by vaccine delays and German business morale slump

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Dollar steadies; euro hurt by vaccine delays and German business morale slump 2

By Elizabeth Howcroft

LONDON (Reuters) – The dollar steadied, the euro slipped and riskier currencies remained strong on Monday, as currency markets were torn between optimism about U.S. stimulus plans, and the reality of slow vaccine rollout and the economic impact of lockdowns in Europe.

Market sentiment had turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the virus hurt business activity, dragging stocks lower.

The safe-haven dollar declined gradually overnight, and riskier currencies strengthened. It then recovered some losses after European markets opened, and was at 90.224 against a basket of currencies at 1152 GMT, flat on the day.

On one hand, market sentiment is supported by hopes for President Joe Biden’s $1.9 trillion fiscal stimulus plans, as well as the expectation that central banks will continue to provide liquidity.

But, in Europe, the extent of the risk appetite was limited by a lack of progress in rolling out the COVID-19 vaccine as well the economic impact of lockdown measures.

German business morale slumped to a six-month low in January, surprising market participants who had expected the survey to show a rise.

“It’s very much a case of hopes for the future against the reality of the first quarter of this year which is going to still prove to be fairly troubled,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.

“For now at least, the optimism that we’re hoping for has been somewhat delayed and that has taken a little bit of steam out of the euro and just put a little bit of support back in the dollar but ultimately I think it is still a case of those high-beta commodity currencies, reflation currencies, will continue to perform well,” he said.

Analysts expect a broad dollar decline during 2021. The net speculative short position on the dollar grew to its largest in ten years in the week to Jan. 19, according to weekly futures data from CFTC released on Friday.

The U.S. Federal Reserve meets on Wednesday and Fed Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed’s massive stimulus any time soon – news which could push the dollar down further.

“The process of tapering QE is likely to be a gradual process which could last throughout 2022, and then potentially be followed by the first rate hikes later in 2023,” wrote MUFG currency analyst Lee Hardman.

“In these circumstances, we continue to believe that it is premature to expect the US dollar to rebound now in anticipation of policy tightening ahead, and still see scope for further weakness this year,” he said.

The euro was down around 0.1% against the dollar, at $1.2153 at 1207 GMT. At the European Central Bank meeting last week, President Christine Lagarde said the bank was closely watching the euro. The euro surged 9% last year versus the dollar and reached new two and a half year highs earlier in January.

But despite this verbal intervention, traders remain bullish on the euro, expecting the bar for a rate cut to be high.

Elsewhere, the Australian dollar, which is seen as a liquid proxy for risk, was up 0.2% at 0.7726 versus the U.S. dollar at 1208 GMT.

The New Zealand dollar was up 0.5%, while the commodity-driven Norwegian crown was up 0.2% the euro.

The safe-haven Japanese yen was flat on the day at 103.815 versus the U.S. dollar.

Graphic: USD, https://fingfx.thomsonreuters.com/gfx/mkt/qmypmyjdxpr/USD.png

(Reporting by Elizabeth Howcroft, editing by Ed Osmond and Chizu Nomiyama)

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Hong Kong’s Cathay Pacific warns of capacity cuts, higher cash burn

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Hong Kong's Cathay Pacific warns of capacity cuts, higher cash burn 3

(Reuters) – Cathay Pacific Airways Ltd on Monday warned passenger capacity could be cut by about 60% and monthly cash burn may rise if Hong Kong installs new measures that require flight crew to quarantine for two weeks.

Hong Kong’s flagship carrier said the expected move will increase cash burn by about HK$300 million ($38.70 million) to HK$400 million per month, on top of current HK$1 billion to HK$1.5 billion levels.

Hong Kong is set to require flight crew entering the Asian financial hub for more than two hours to quarantine in a hotel for two weeks, the South China Morning Post reported last week, citing sources.

“The new measure will have a significant impact on our ability to service our passenger and cargo markets,” Cathay said in a statement, adding that expected curbs will also reduce its cargo capacity by 25%.

The airline, in an internal memo seen by Reuters, requested for volunteers among its crew who could fly for three weeks, followed by two weeks of quarantine and 14 days free of duty, adding it will be a temporary measure and not all its flight will require such an operation.

“We continue to engage with key stakeholders in the Hong Kong Government,” the memo said.

In an emailed response to Reuters, a Hong Kong government spokesperson said: “In the light of the evolving pandemic situation locally and internationally, the Government will keep reviewing and refining the arrangements applicable to different categories of exempted persons, including air crew, with reference to all relevant considerations.”

Separately, a company spokeswoman said the airline could not detail the impact on vaccine transport specifically in terms of cargo shipments.

The aviation industry has been hit hard by the COVID-19 pandemic as many countries imposed travel restrictions to contain its spread.

In December, Cathay’s passenger numbers fell by 98.7% compared to a year earlier, though cargo carriage was down by a smaller 32.3%.

(Reporting by Shriya Ramakrishnan in Bengaluru; Additional reporting by Jamie Freed in Sydney and Twinnie Siu in Hong Kong; Editing by Bernard Orr, Arun Koyyur and Mark Potter)

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