Archive: March, 2011

Will the Budget affect procurement?

Despite the Chancellor calling it a budget for growth, the Office for Budget Responsibility (OBR) begged to differ. The Financial Times reported that “Osborne sticks with Plan A” to cut public sector borrowing and fuel private sector growth. The effect will be no nett increase in growth.

After nearly a decade of lobbying, business got most of the changes to the corporate tax regime that it was seeking. Most significantly, corporation tax will fall from 28 per cent to 26 per cent next month and to 23 per cent by 2014-15. The change means that the UK will have the lowest levels of corporation tax in the G7, assuming the other nations do not follow the Chancellor’s lead. This will attract multinationals to do more business here and create more competition in key sectors.

The banking and oil industry reacted predictably to the increase in the bank levy and the tax on North Sea oil and gas. I believe that threats by the banking industry to move overseas and the oil industry to slow investment lack credibility. One only has to look at the profit announcements in recent months to realise that Britain will remain a good place to do business for some time. This will not stop these industries from trying to pass on these tax rises to their customers as higher prices.

The significant news for procurement came not from the Chancellor but from the Office for National Statistics (ONS) and the OBR. The increase in inflation (CPI) from 4.0% in January to 4.4% in February and the forecast for further increases will give suppliers more reason to ask for price rises. Lower growth and higher unemployment will mean that the pressure on prices cannot be offset by higher volumes. We don’t have to accept these requests but its becoming increasingly difficult.

Japan supply chain risk reverberates globally

As the crisis in Japan deepens by the day our immediate thoughts are with those people affected by the tsunami and the nuclear plant at Fukushima Daiichi.  Japanese police say 6,405 people are known to have died and around 10,200 others are missing. Relief workers bowed their heads as a show of respect for the dead at 1446 local time (0546GMT today), seven days after the quake.

Gillian Tett of the Financial Times (FT) writes an interesting article (Japan supply chain risk reverberates globally, 15 March 2011) highlighting the impact of the crisis on the world’s manufacturing supply chains, most notably in the auto and electronics sectors. Honda, Japan’s second-largest carmaker, said on Monday that it was halting domestic production for a week and that damage to its suppliers’ plants might disrupt its UK production. Toyota, Nissan and Mitsubishi Motors  also extended shutdowns of their plants in order to assess and deal with damage from the quake. Japan not only has some of the world’s leading OEM electronics companies, such as Sony, NEC and Hitachi, they also have a high number of first tier electronics suppliers. Japan produces about 30 per cent of the world’s flash memory (used in electronic cameras and smartphones) and around 15 per cent of the D-Ram memory (used in PCs). Further analysis in the FT (Global industries consider their options, 17 March 2011) highlighted one particular material used to make the substrates that connect chips to printed circuit boards used in handsets. Approximately 90% of the world supply of bismaleimide-triazine (BT) resin is made in Japan. Mitsubishi Gas Chemicals (MGC) makes about half of Japans output and closed its 2 plants on Friday.

Various analysts have commented on the crisis although opinions about its impact vary greatly. I think the most balance view comes from Société Générale, the French bank, commenting on the impact on China. Société Générale said there would be “noticeable short-term disruption” but that the impact was unlikely to be “lasting or devastating” since in many cases back up suppliers from other countries, such as Taiwan or South Korean, could be found. 

The effects of the crisis are being felt in the financial markets; the Nikkei 225 slumped amid panic selling although this morning it has bounced back following agreement to intervene in the currency.

Most purchasers are aware of the risks associated with their more complex supply chains. For some purchasers this crisis will put additional demands on their skills to evaluate the impact and to find alternative sources of supply. What is clear, however, is that the crisis is far from over.

CHC’s pro-active and flexible approach results in more work

Following the successful transition of the UK part of United Utilities’ non-regulated business to Veolia Water, CHC is pleased to announce that it has been awarded additional work with Veolia Water. Arwinderpal Heran, Performance Improvement Director at Veolia Water said that “Angus was tasked with ensuring the transition of 6 businesses, 180 new employees and 700 suppliers into the existing Veolia business and he met all his deliverables and objectives in the timescales and within budget. His pro-active and flexible approach was essential in delivering this project and I would like to thank him on behalf of Veolia Water for his support and contribution.” The additional work will enable CHC to help Veolia Water Procurement deliver the savings that have been identified as part of the integration while exploring new opportunities in indirect spend.

Headlines and highlife

If the number of headlines is anything to go by, then the surge in M&A activity that I wrote about a couple of weeks ago (2011 is a good year for M&A and is getting better) seems to be coming to fruition. The most eye-catching of the headlines this week have been those about News Corp and British Sky Broadcasting. It’s not all good news for those of us involved in M&A. Although Jeremy Hunt, the culture secretary, announced that he is not going to refer the deal to the Competition Commission, BSkyB’s shareholders want a lot more money than News Corp is currently offering. Also, Tony Jackson commented in the FT on Monday that Ashley Steele, a former colleague at KPMG, had seen the passenger numbers at Heathrow fall last year because it had been a quiet year for M&A. The evidence is necessarily anecdotal but interesting none the less. All the signs suggest that Heathrow should fair better this year but it should not count its chickens just yet.