3 Strategies to Make Innovation Tournaments More Successful

Crowdsourcing is an increasingly popular way for companies to source new ideas. With innovation tournaments, companies essentially issue an open call for new ideas and select at least one winner from those submitted after a prescribed time period. In 2012, PepsiCo’s “Do Us a Flavor” tournament helped the company create the “cheesy garlic bread” flavor which contributed to an 8% increase in sales in the three months following the tournament. Other products created this way include rugged Dell laptops for marine use and thematic Lego sets.

However, many innovation tournaments fail to produce the desired results. For example, when Dell launched its Idea Storm crowdsourcing initiative, it received more than 10,000 ideas from users around the globe. Tournament administrators facing such a high volume of ideas face a “tremendous effort” in idea selection and may “not be able to filter and select the most promising ones.”

So what makes innovation tournaments successful? A new study in the Journal of Marketing explores how companies can structure tournaments to drive meaningful results. Simply generating a high volume of ideas and sifting through them looking for gold is not the right approach.

Move Beyond “Volume” by Focusing on Participation Intensity

Our research demonstrates that firms should move beyond the “volume” approach. Instead, they should focus on stimulating ideators’ participation intensity; i.e., their engagement and active involvement in the platform throughout the tournament. Ideators with high participation intensity are those who repeatedly view and update their ideas in the platform. Data on ideators’ repeated viewing and updating behavior can be readily obtained from online idea generation platforms. Yet most firms now routinely monitor only the number of ideas and number of ideators, favoring that data over markers of participation intensity.

We ran a large managerial survey among innovation executives at 1,519 firms, out of which 516 (33.95%) had already run an innovation tournament on an online platform. The results were unequivocal: Participation intensity is a critical driver of idea quality in innovation tournaments, well above the effect of number of ideas and number of ideators. In other words, participation intensity influences the financial success of such innovation tournaments.

The Role of Moderator Feedback in Stimulating Participation Intensity

To help ideators revise and improve their ideas, firms hosting an innovation tournament often interact with and provide feedback to ideators. Unfortunately, most firms seem to lack a clear moderator feedback strategy and decide their moderator feedback strategy based on “widespread and accepted practices” rather than evidence-based guidelines. For instance, many firms seem to rely on positive feedback or at least use a “sandwich approach” — in which they sandwich the negative feedback between two pieces of positive feedback – to keep ideators engaged in the tournament. Which type of feedback is better able to drive ideators’ participation intensity: positive, negative, or mixed feedback? In addition, how should moderators time feedback: Is it better to give ideators some breathing time and provide feedback late in the tournament, or better to act quickly and provide feedback early in the tournament?

To answer these questions, we conducted two longitudinal experiments using a commercial innovation tournament platform. These longitudinal experiments allow us to examine the causal effect of feedback type and timing on participation intensity. In each of the experiments we organized a tournament called “ESE Innovation Tournament” where we invited students of the Erasmus School of Economics in the Netherlands to contribute ideas that would have an impact on the school by 2030. Over several rounds, we then experimentally manipulated the type of moderator feedback given to each idea to measure the impact of feedback type and timing on ideators’ participation intensity.

What we found went against prevailing wisdom. Negative feedback (i.e., constructive criticism) was more effective in sustaining participation intensity than positive feedback and the “sandwich approach” was not helpful. For instance, in one of our two experiments we found that, on average, 10.43% of participants who received negative feedback updated their ideas while only 2.3% of participants who received positive feedback did so. In terms of timing, we found that early negative feedback increased participation intensity but late negative feedback did not. For instance, in one of our empirical studies we found that the percentage of participants who update their ideas when they receive negative feedback close to the end of a tournament is 20% lower than the percentage of participants who update their ideas when they receive negative feedback during the early stages of the tournament. These findings have important implications for firms organizing innovation tournaments.

Designing a Winning Innovation Tournament

Our research demonstrates that companies need to spend more attention on increasing participation intensity to ensure the success of innovation tournaments. We suggest that participation intensity should become a behavior to monitor, a metric to report, and an outcome to incentivize. For example, firms may want to consider encouraging ideators to remain actively engaged in the tournament (e.g., viewing and updating their idea over several rounds). Firms should also demand third-party platform providers to report participation intensity routinely (e.g., at the end of every day) beyond the number of ideas and number of participants.

We also show that firms can incentivize participation intensity through moderator feedback. Firms should train moderators to challenge participants’ ideas and highlight to participants the “work that still needs to be done” for the idea to be successful. Unambiguously signaling that an ideator needs to invest more effort to accomplish her goals (in turn, leads her to increase her efforts) is good. However, the effectiveness of criticism on participation intensity seems to attenuate over time. Therefore, moderators should frontload their criticism of ideas to the early rather than late stages of an innovation tournament.

By: Nuno Camacho, Hyoryung Nam, P.K. Kannan and Stefan Stremersch
Source: www.ama.org

What’s next for 2019? Influencer marketing trends

Will professional influencers become all the rage in 2019 – or will they disappear as the next new influential technology arrives?

With the influx of Instagram Stories and IGTV, brands are investing heavily into influencer content and relationships. Instagram’s overall users have grown significantly over the last four years with no plans of stopping.

On YouTube in 2018, the number of channels earning six figures per year grew by more than 40 percent year on year.

Influencers certainly seem to have a place in brand awareness campaigns. So what could happen in 2019?

Cologne, Germany-based Influencer DB looked at the state of the influencer marketing industry with predictions for 2019 and beyond.

It examined Instagram posts published between January 2013 to July 2018 which were labelled as paid partnerships by the use of 68 sponsoring hashtags such as #ad, #commercial, #spon across 15 different languages.

It discovered that 39 percent of Instagram accounts with over 15K followers are influencers, with the rest being brands or companies. Almost one third of Instagram channels are micro-influencer, with fewer than 100K followers.

Mega-influencers with over 5 million followers account make up less than one percent of influencers. These micro-influencers – who have between 15,000 and 100,000 followers – account for the majority of sponsored Instagram posts.

Technology is not favoured on Instagram, accounting for just one percent of posts. A quarter of all sponsored posts cover fashion, followed by food (12 percent) and entertainment (11 percent).

nfluencers can earn big bucks on YouTube. Aurora, IL-based packaging distributor Shorr Packaging conducted an analysis of more than 1,500 YouTube user channels. It wanted to learn more about the growing impact of YouTube influencer marketing.

In October 2018, it analyzed the 3,000 most recently uploaded “haul” and “unbox” videos on YouTube.

Over a thousand of these types of videos are produced each week, and top influencers count their total views in billions.

A haul video is where an influencer discusses a number of products they have purchased, on shopping spree, known as a “haul”. An unbox is where a person opens a package with a product in it, then reviews or uses the product.

Top Haul categories are clothing at 59 percent, general discount at 11 percent and beauty and makeup at 9 percent.

Top unboxing categories are: toys at 29 percent, phones and accessories at 16 percent, computers tablets and accessories at 10 percent, and gaming consoles and accessories at 7 percent.

The estimated annual earnings for the average haul-er is less than $6,000 per year and the typical unbox-er earns no money at all.

So what can we expect in 2019?

Professional influencers will become more valuable in 2019 – especially influencers who influence others in the same industry.

Micro influencers, who work at a local state, or country level will be in more demand as brands move further into experiential marketing to give the customer a personalised experience around events and cross channel programs

There is a clear growth in micro-influencers and though influencer marketing appears as though it is here to stay, it will shift towards a more personalised niche influencer program

Co-founder and CEO at influencer marketing platform Traackr, Pierre-Loïc Assayag outlined his three predictions on influencer marketing in 2019

Brands will focus on alignment and brand fit over followers. Brands will will reassess the way they pay their influencers. No longer focusing on reach, brands will focus on the quality of engagement, identity and voice of the influencer, audience relevance and how the audience is interacting with the content relevance.

Brands will move away from transactional to relational influencer marketing. Influencer marketing used to be a buy – however this method often appeared inauthentic to their audience, resulting in a lower ROI than expected.

In 2019, brands will shift from transactional strategies to invest in cultivating organic relationships in-house with influencers and longer term partnerships with paid influencers.

Brand marketers will focus on creating an advanced approach for measuring success. Brand marketers in 2019 will quantify the impact influencer programs actually have on marketing objectives. This advanced approach will deliver deeper insights into how to optimize influencer investments for stronger alignment with business goals.

Whatever the next new technology happens to be, brands had better make sure they have a good influencers marketing plan – and focus on nano influencers as well as influencers with a large reach.

By: Eileen Brown
Source: www.zdnet.com

International firm Sorainen is looking for a marketing assistant

Leading regional business law firm Sorainen is looking for an enthusiastic, positive, and ambitious Business Development & Marketing (BD&M) assistant to help promote our international law firm both in and outside Belarus.
You will be responsible for:
• assisting in developing and implementing the firm’s corporate strategy;
• updating marketing databases and information in firm’s website, following up changes in local legal market;
• assisting in preparing, organising and ordering necessary marketing and printing materials;
• assisting in creation and delivery of press releases, corporate leaflets
and other marketing materials;
• provide business development and marketing related assistance to lawyers and legal teams;
• assisting with business events planning and organisation.
We expect you to have:
• a degree in marketing (1-3 years of relevant experience is an advantage);
• strong oral and written communication skills in Russian and English;
• strong collaboration skills;
• confident and dynamic personality;
• creative mindset;
• passion and curiosity for promoting products of a consulting business.
We offer:
• work at a modern and dynamic international consulting organisation;
• advanced BD&M know-how;
• diverse professional experience;
• young and talented team of selected professionals (average under 30);
• proved competitive compensation package;
• central office location.

International firm Sorainen is looking for a marketing assistant

We all take advantage of a wide range of professional trainings, internships outside Belarus, close collaboration with BD&M colleagues in other offices, shared internal library, and more.
More about the firm: sorainen.com, FB, Instagram
Resumes with motivation letters please send to hr.by@sorainen.com

uk – Law firm Sorainen

How Marketers Can Start Adopting Artificial Intelligence Tomorrow


Paul Roetzer couldn’t stop watching. It was 2011 and Watson, a then-new IBM supercomputer, faced off against 74-time “Jeopardy!” champion Ken Jennings and the show’s all-time money leader, Brad Rutter. Watson, a question-answering artificial intelligence system, would buzz in within a second of host Alex Trebek asking a question, giving what the AI determined to be the most probable answer. By the end of the game, Watson had dominated the show’s all-time greats by more than $50,000.

By late 2016, Roetzer had become so obsessed by AI’s potential in marketing that he founded the Marketing Artificial Intelligence Institute, a group with the mission of making AI approachable and actionable for modern marketers. Roetzer still runs his company, PR 20/20, but he says that his AI group now takes nearly all his time. He badly wants to figure out how organizations can pilot and scale AI tools to increase efficiency and reduce costs.

So far, he has nearly the entire marketing industry to work with.

“The vast majority of the industry is at what I consider the pilot phase,” he says. “Most are trying to understand what AI is, then how to apply it.”

A 2018 report by Boston Consulting Group and MIT Sloan Management Review—titled “Artificial Intelligence in Business Gets Real”—finds that only 18% of companies are “pioneers,” or organizations that understand and have adopted AI. A third of companies (33%) are “investigators” that are in the pilot stage and know a bit about AI, while 16% are “experimenters” that are piloting AI without fully understanding it—they hope to learn about AI as they use it. The rest (34%) are “passives,” or organizations that haven’t adopted and barely understand AI.

Over the past few years, many marketers have marveled at AI and wondered the same thing Roetzer did after watching Watson dominate its fleshy opponents: How does that work? As 2019 begins, marketers can move beyond passivity and into being AI pioneers.

Learn Now

Like Roetzer, Robert Redmond watched “Jeopardy!” in awe as Watson dominated the show’s legends. Redmond, a self-described sci-fi geek, had been hearing about AI since he was a young boy, but the AI’s game-show performance was a glimpse at the technology’s capabilities.

At the time, Redmond was working as a creative director of teamDigital Productions; by 2016, he worked at IBM with Watson Advertising as creative and strategy director. Redmond is tasked with figuring out how Watson can help brands have unique, AI-driven chats with their customers.

When Redmond first learned that he’d be working with Watson, he says that he knew close to nothing about how AI worked, especially from an engineering perspective. Redmond calls the six months leading up to working with Watson his “baptism” into AI—he was already an AI convert, he says, but he still had to fight to understand what was possible with the technology.

“I read a lot and I asked more questions than most would probably be comfortable answering,” he says. “There was a lot of ‘Can we do that?’ And the learning came by understanding the implications on the back side of those questions.”

Marketers—most of whom likely don’t fully understand AI, let alone its true potential in business—should also be asking a lot of questions. Redmond believes that businesses should learn by digging into possibilities and seeing what AI tools are available on the market. Both he and Roetzer have encountered some companies that use AI-based software without realizing it—this is likely the case for many companies searching for their first piece of AI-based software.

For marketers eager to learn about AI, Roetzer suggests reading Human + Machine: Reimagining Work in the Age of AI by Paul Daugherty and H. James Wilson and Prediction Machines: The Simple Economics of Artificial Intelligence​ by Ajay Agrawal, Joshua Gans and Avi Goldfarb. “Most of the really valuable AI education has nothing to do with marketing or sales,” Roetzer says. Even so, books like these can give marketers a window into AI and its business potential.

Marketers should learn how their competition is using AI. They should also ask vendors pointed questions about the AI software they’re selling. “A lot of tech vendors are slapping ‘machine learning’ and ‘AI’ on their branding,” Roetzer says. “A lot of times, they don’t even know what that means. The sales and marketing teams can’t explain how their products use AI. They’re just told by the engineers that it’s AI.”

Marketers can also play with online AI demos to get an idea of how AI-driven tools work. Google has many educational tools on its AI landing page, Roetzer says, as does IBM’s Watson. One Watson tool—Personality Insights—allows users to log into their Twitter account and receive a personality analysis based on their tweets.

“There are a lot of resources out there, and you can connect the dots pretty quickly if you just consume the right resources and understand the ways you might be able to apply it in your business,” Roetzer says.’

Find Easy Wins and Tough Problems

Companies without AI experience will likely have a steep learning curve, Redmond says. “There’s definitively going to be a training period, a modeling period, and probably a fail period if you’re stepping into a scenario where you are really starting from scratch,” he says. “It’s a difficult transition.”

Redmond and Roetzer both say that this difficult transition will make early, easy wins essential. One potential easy win, Redmond says, is using AI-based programmatic advertising tools to bid on media buys. Another he suggests is natural-language processing tools that can quickly judge the tone and intent of business communications, such as emails, memos or marketing materials. “You can discover new ways or new features that might be important that you didn’t realize or pressure points that may be bigger than you’ve been admitting,” he says. “You uncover the insights, and you can act upon them.”

The simplest way to find easy wins, Roetzer says, is to make a list of all the tasks in the business—from quick to time-consuming—and measure how much time employees spend on each task, as well as how much money the company spends on software or outside services for each. Then, marketers can rate each task from one to five based on how much value AI could bring. A one would mean little to no value, a five would mean a good AI solution would be transformative. Listing, measuring and rating may sound arduous, but Roetzer says that the process will give marketers an idea of AI’s potential value in cutting down time and costs.

“If you’re the director of marketing, and you’re trying to get buy-in to try this, you can go and say, ‘Hey, I went through an analysis. Here’re the five use cases where I think we create the most value,’” Roetzer says.

The C-Suite Must Buy in, Time Must Be Given

Redmond normally works with companies that have a mandate from the top to adopt AI, now. The chief technology and chief information officers with whom he tends to work are focused on a problem at a high level and want to solve it with AI; that desire spreads through the rest of the organization.

But not every marketing manager will be so lucky. Roetzer says that even marketers who get the C-suite to buy into AI software often have executives quit on their AI project before it can prove its efficacy. AI systems, especially at small or midsize companies, sharpen over time and often need months to learn—it’s hard work to get AI right, it likely won’t work right away and it may even fail during the first pilot. If a CMO adopts an AI-powered media-buying tool, for example, and it doesn’t show lift three months and $20,000 into adoption, many executives will scrap the idea of AI altogether, convinced it doesn’t work.

“It’s a hard thing to explain to the C-suite if they’re not the ones driving it,” Roetzer says. “Even at the pilot stage, there needs to be buy-in at the top level. [They need to know] that this is going to be an ongoing experiment, and it’s going to transform everything we do. But we have to have the right investment and the right patience to see it through.”

Organizations must understand from the start that AI is not a magic switch, Roetzer says. Companies can’t just expect to adopt AI and—poof!—solve all their problems. Adopting AI is a lot of work and requires a lot of data to train its models; it takes a lot of strategy to prioritize what cases are helped by AI and what cases should be left for another day. “Some people may give up too easily,” he says.

Although Roetzer knows that it may sound as though he’s trying to scare people away or downplay AI’s potential, he believes that marketers who properly adopt AI will be given “superpowers.” “It’s going to fundamentally change the way we do marketing,” he says.

By: Hal Conick
Source: www.ama.org

Marketing Goes Back to the Future

Yesterday’s harebrained projection can become tomorrow’s reality

I was about to do what likely 10,000 other marketing professionals are doing, to play futurist on the year ahead. What’s hot? What’s not? ​

Rather than add to the lists of current trends and prognostications, I’m going to encourage you to read others’ predictions. I’ve been around long enough to know that so-called trendspotters never miss. They are either right or waiting to be right. No matter how outlandish some ideas may sound, I’m going to push you to read with an open mind and a level of curiosity that should be second nature for any marketer.

One of my favorite communication tactics is a “head fake.” It refers to hearing a description of something that happened at a certain point in time, only to learn that the event really occurred at an entirely different point in history. I’ve used head fakes effectively over the years; the tactic came to mind as I reviewed an AMA conference presentation from 50 years ago. It provided the perfect opportunity for a head fake.

In 1967, Paul Baran attempted to predict the future state of the year 2000, some 33 years into the future. Even the title, “Some Changes in Information Technology Affecting Marketing in the Year 2000,” has a tone of unassuming modesty, as if to say, “Here are a few ideas I have. They’re half-baked, so don’t be too critical.”

I’ve taken the liberty to draw excerpts from that presentation, which, in my opinion, was nothing short of prophetic. I’ve handpicked various concepts Baran described.

Think about how you could refine these remarks, stand up in front of savvy marketers and describe the world in which we live today, some 50 years after Baran called his shot like Babe Ruth.

In 1967, Baran’s audience probably thought his comments read as though they had been pulled from a low-budget science fiction film. But Baran’s musings foreshadowed the power of the internet, including services like Skype and FaceTime, Netflix and YouTube, Yelp and Angie’s List, and Amazon’s many services.

“The new computer-communications technology could revolutionize the entire process of distribution of goods. … Such development will represent a profound change in our traditional form of distribution. … Specifically, an interactive, automated, information processing system which allows rapid and friendly coupling between an individual and a huge information base.”

Baran’s comments could have been made 25 years later by Steve Jobs or Bill Gates. The head fake is only getting started as he then outlines his vision of videoconferencing.

“[W]e can realistically expect widespread large-screen, color, person-to-person TV communications. … This development will attempt to create the illusion that those in TV communications with one another are in effect within the same room.”

This sounds a lot like Skype, FaceTime and other videoconferencing platforms.

“Entertainment, even for the smallest select audience, will come via the screen. We no longer will be constrained by the paucity of channels which restricts present television to sponsors fighting for the largest slice of the audience, and in the process catering to the tastes of the lowest common denominator.”

Does that sound like Netflix, YouTube, Hulu and other streaming media services? This prediction is powerful in light of Disney‘s merger with 21st Century Fox or the potential merger of AT&T and Time Warner. These icons are transforming themselves to stay relevant, but I wonder if they are too late.

In addition to new channels for distributing products, Baran also predicted new methods for individuals to exchange information about those products.

“When the consumer reaches the lower end of the selection tree and has narrowed his choice to a small number of contending products, it becomes plausible and appropriate to call up specific advertising for each. This is the socially beneficial use of advertising. Here, the recipient wants to read, to see and to hear advertising. … The consumer can be encouraged to use valid comparative testing information to help decide which product is ‘best.’ ”

It’s a predication of electronic word-of-mouth systems such as Yelp, Angie’s List and Google Reviews.

“Much of the shopping will be done from home via TV display. Think of this screen as a general-purpose genie. Pressing a few buttons on a keyboard allows interaction with a powerful information processing network. The information network sends back a modified image to the TV display in response to selections. … The customer wants to know prices and delivery before reaching a final decision. The information storage system can tell him whether the pink shirts with tab collars are available, from whom, when and at what price. Price comparisons are instantaneous and again reinforce the free enterprise price mechanism. Direct dealing with the manufacturer will increase, as the goods will be dispensed from the most economic storage point.”

This accurately points to Google, Amazon, the Home Shopping Network and online retailers.

While it took time for technology to become readily available, you shouldn’t be surprised that Baran was able to leap from early online shopping to today’s more sophisticated form of online consumerism.

“Consider another class of goods whose purchase is totally a repetitive nuisance to the consumer—shopping for staple groceries. Once finding a brand of pickled string beans that suit your fancy, you wish to reorder the exact product without having to play Sherlock Holmes. You would like to be able to reorder many such items painlessly. Again, the computer can come to our aid by providing us with a stored list for rapid recall ordering. The better information available about alternative prices for the same goods will eliminate the undignified loss-leader game to trick the consumer into the store.”

It sounds like the pitch for Amazon Subscriptions and smart-home services.

As you read through the prognostications of the years to come, take a second look at the ideas that now seem unbelievable or farfetched. It may be that what seems barely possible today will soon become reality.

Russ Klein
Source: www.ama.org

A New Study Commissioned by Snapchat Reveals How Millennials Shop

73% prefer to use a debit or credit card over cash

By: Ann-Marie Alcántara
Source: www.adweek.com

Today’s Logistics Report: ‘Tis Delivery Season; Nimble Warehousing; Braking Trucking’s Rest Rules

Retailers and parcel carriers are delivering strong results along with signals of steep changes in sales and shipping patterns this holiday season. Early measures suggest stores met lofty sales expectations, the WSJ’s Sarah Nassauer and Paul Ziobro report, as Americans crowded stores and retailers wrapped up one of the strongest holiday seasons in years. U.S. retail sales rose 5.2% from Nov. 1 to Dec. 19, and Mastercard SpendingPulse says online sales rose 18.3% during that time and accounted for a record 13% of total sales. In-store sales grew 4.3%. The delivery backbone of the online economy has held up, with ShipMatrix Inc. reporting on-time performance at FedEx Corp. and the U.S. Postal Service was on track with last year while United Parcel Service Inc. improved its deliveries thanks to extra capacity and new technology. Those efforts suggest carriers have new lessons from this season to take into 2019.

More retailers are turning toward flexibility over fixed assets when it comes to warehousing. The companies and their logistics providers are taking a cue from gig-economy principles by turning to on-demand distribution capacity, the WSJ Logistics Report’s Jennifer Smith writes, as they look to stay nimble while digital commerce raises the stakes in supply chains. The idea is to tap into unused warehouse space in a crowded U.S. real-estate market where capacity near population centers fetches a growing price premium. Online startup retailers have been prime targets for such pop-up spots, but they’re now attracting big retailers trying to set logistics strategies in the face of volatile demand. Walmart Inc., for instance, used the Flexe Inc. marketplace to get some 1.5 million square feet of temporary space for e-commerce fulfillment this season. Logistics providers are noticing, and establishing their own on-demand warehouse services.

Federal highway safety regulators delivered an interstate victory to trucking companies. A new U.S. Transportation Department ruling effectively runs California’s attempts to its own rules for trucker rest breaks off the road. The WSJ Logistics Report’s Erica E. Phillips writes the ruling in response to a petition from the American Trucking Associations says the state rules “cause an unreasonable burden on interstate commerce,” and are preempted by the federal hours-of-service regulations. That’s a win for trucking companies in a long-running battle over California’s efforts to impose rules that are tougher than federal restrictions in various areas of transportation. California lawmakers recently passed legislation toughening rules on port trucking by making shipping customers partly responsible for labor-law violations. Trucking groups have mobilized against the rules on meals and rest breaks, but they haven’t been able to get Congress to act to clarify that federal rules preempt California’s standards.


A Pennsylvania woolen mill that helped weave the fabric of American history for nearly two centuries is spinning its final chapter. The Woolrich mill in Woolrich, Penn., is succumbing to the driving forces of global business and shutting down after more than 170 years of operation, the WSJ’s Ruth Simon reports, idling a plant that fashioned blankets for Union soldiers as well as the flannel shirts that have clothed 21st century youth. The shutdown this year comes as bigger events around the world roiled the business, highlighting the broad forces that are transforming U.S. manufacturing. But some descendants of Woolrich’s founder who ceded control of the business also believe it unraveled because of the lack of investment over the years. That helped leave Woolrich in the hands of a private-equity owner who will keep the business name intact but shutter a factory now deemed too costly to operate.

By: Paul Page
Source: www.wsj.com

Inflation Making Waves for Supply Management

New study identifies five areas that can help procurement navigate uncharted waters.

Two trends have been nudging U.S. inflation higher: a growing economy and a tight labor market. Add in tariffs, high transportation costs, and rising prices for many commodities, and the United States is poised for a long-term period of double-digit inflation—uncharted territory for most of today’s supply management professionals.

To understand how companies are reacting to this environment and to identify ways procurement can mitigate the impact of inflation on the prices they pay to suppliers, the Institute for Supply Management® and A.T. Kearney conducted a study of more than 300 supply managers in the spring of 2018. What we found is that lost purchasing power is their primary concern.

A focus on five areas can help forward-thinking organizations thrive in this volatile environment:

Supplier selection. Being prepared to handle inflation requires a company’s suppliers being in control of their costs. If not, those costs get passed on to the company in the form of higher prices. However, a third of the companies in the study say their suppliers are below average at controlling costs, and most supply managers believe they are merely reactive to increasing prices.

Market analysis. Most companies do not have a formal market analysis program—highlighting a missed opportunity to extract more value from the supply base. Only 40 percent of the companies in our study have a formal in-house supply market analytics team to monitor market changes.

Internal communication. Communicating with stakeholders is essential, especially when changes occur. As cost savings morph into cost avoidance, price inflation will redefine what successful procurement looks like. Although 53 percent of supply managers say internal communication and stakeholder management are important, almost half have either no communication or only ad-hoc communication with their stakeholders.

Internal collaboration. Finance can be a supportive stakeholder if open and active cooperation exists between finance and procurement. And yet, only 62 percent of supply managers partner with finance to assess the implications and plan for purchasing negotiations.

External collaboration. Sixty-seven percent of supply managers say they focus on supplier relationship management to identify ways to jointly mitigate cost inflation. In addition, 52 percent focus on inventory management, which can free up cash flow as borrowing becomes more expensive amid higher interest rates.

Higher prices are being felt in every industry. However, supply managers can take a proactive approach—with a formal market analysis, improved communication with stakeholders, effective supplier relationship management, and strategies to lock in lower prices, leverage buying power or build inventory. When aligned with a company’s strengths and overall goals, this approach can help power procurement through inflationary times. To learn more about inflation-fighting strategies for procurement, read the full report: High Inflation: Uncharted Waters for Supply Management.

By: Jane Wanklyn
Source: www.inboundlogistics.com