With the exception of electronic commerce, perhaps the most talked about area of business innovation among purchasing professionals is outsourcing and supplier relationships. On the second morning of the conference, delegates heard chief executives from two very different organisations explain why this approach was at the heart of their business strategies.

But if the messages were similar, the contrasts in their starting positions could not have been more striking. Whereas Barbara Cassani, boss of British Airways’ low-cost airline Go, had been handed a blank sheet of paper, Peter Bareau, her counterpart at publicly owned National Savings, faced the challenge of transforming a 130-year-old bureaucracy into something that could hold its own in a fast-changing financial services market. Having been given the freedom to contract out whatever was necessary, Cassani explained that 18-month-old Go had opted for a 50:50 split. While the airline’s engineering and ground-handling services were provided externally, all pilots, cabin crew and operations had been kept in-house. Cassani said there were three principles behind Go’s outsourcing, which she viewed as a “key strategic purchasing decision”. First, the supplier had to have the same business philosophy (no-frills, high-quality service at low prices). Second, service-level agreements were based on targets for check-in and baggage retrieval waiting times. And, third, the supplier had to want to be so closely entwined with Go that it felt like part of the company. “I have a very bizarre approach to supplier management,” she said. “I call it the ‘bear hug’. If you get so close to a supplier that you are hugging them, and they are hugging you back, they become you. It’s a magical experience.” Cassani said Go had overturned the conventional wisdom that customer-facing staff had to be employed directly. “There is nothing I wouldn’t consider outsourcing,” she added. These sentiments were shared by Bareau, the man responsible for one of the year’s most innovative business deals. On 1 April, over 4,000 National Savings staff were transferred to Siemens Business Services, leaving 130 people to manage a £65 billion concern. For the arrangement to work, a strong partnership between the two organisations was essential, he said. “Outsourcing is not about shedding responsibility. It’s about managing in a different way to get the outcomes you want.” For National Savings, Bareau declared, “managing relationships with suppliers is the key to success and competitive advantage”. As a result, functions such as finance and HR were regarded as support services, he added, whereas “sourcing” (headed by CIPS board of management chair Jeannie Bevan) was a core competence, requiring board-level representation and a strategic input into all areas of the business. This was, not surprisingly, music to the ears of a purchasing and supply chain audience. Unfortunately, the reality is that most UK companies still regard procurement as a non-core service, and hence one that could itself be outsourced. It was, therefore, with rather less comfort that delegates listened to Robert Earle, managing director of the procurement outsourcing practice at PricewaterhouseCoopers, one of a growing band of firms eager to capitalise on such an opportunity. “Like it or not, outsourcing is going to change the way we do business,” proclaimed Earle, whose presentation was clearly aimed more at chief executives than at purchasers. But in setting out his advice for would-be outsourcers, Earle was quick to point out that it was no panacea. “Not everyone who outsources is going to be a winner,” he warned. Too many companies (79 per cent, according to one research study) saw cost-cutting, rather than longer-term strategic aims, as the main reason for outsourcing, while too few appreciated the need for cultural synergy between the two parties. The notion that outsourcing is no easy option was confirmed by both Cassani and Bareau. Speaking to SM afterwards, Cassani acknowledged that Go had faced tough problems with several suppliers. “When you are physically remote from people delivering the service - for example, handling agents in Rome and Milan - it can be hard to figure out what’s going on. I’m sure we will evolve our model,” she said. Bareau, meanwhile, stressed that six months’ experience had shown that “if you’re going to have a strategic partnership with a supplier, you have got to manage it extremely carefully”. In the conference’s closing speech, management writer Robert Heller argued that such partnerships were altering traditional buyer-supplier relations. He recounted how a friend was taken aback at a conference when a supplier of wing mirrors berated a major automotive company for not sharing vital technical information that could have avoided a later problem. Heller also questioned whether size was always an advantage, citing the example of Compaq managers who found they could buy PC components cheaper when they posed as representatives of a small startup firm. Cassani provided further evidence of this when asked about Go’s relations with larger suppliers. She described how, a few weeks ago on her first visit to Boeing (which supplies Go with 737 aircraft), its executives were shocked to discover that Go’s no-frills philosophy meant she was more interested in probing their cost structures than enjoying their lavish hospitality. “They are not used to the straightforwardness that small companies bring,” she said. Heller concluded that in the age of the “virtual” or “near-virtual” company, what mattered was not so much the firm itself but the quality of its business systems, many of which would be run externally. “Today, you have to learn to trust people outside your company,” he said. In such a scenario, he foresaw a role for purchasing specialists as “virtual integrators”, managing disparate suppliers in a way that maximised success for their business. Debate: Purchasing v Marketing Purchasing and marketing - often antagonistic but inextricably linked - must co-operate for the good of the business. But which comes first in the pecking order? Robin Cammish, senior vice-president and business director of purchasing consultancy QPA, and Ros King, managing partner at advertising agency J Walter Thompson, faced off in this year’s conference debate. Cammish tackled head on the traditional stereotypes of procurement staidness versus marketing glitz. Purchasing should not be brushed off by busy chief executives who see procurement as “managing the trivia at the back of the business”. It was high time that purchasers were seen as in the same league as their marketing colleagues. What chief executives want from purchasing, he said, is team players who are good functional managers and who deliver guaranteed service, performance and savings to the business. “In other words, they want a no-hassle, professional job done without any turf wars.” Marketers were particularly good at hyping up their achievements, Cammish added. Purchasers needed to learn from this and promote themselves more effectively. “Purchasing should sell the heroic stories. Purchasers like to just get the job done, not take the kudos. But there is an active requirement for leaders like us to be out there promoting. One heroic story is as good as a 100-page report.” King, whose clients have included Barclays Bank, Kellogg's, Procter & Gamble and Cadbury’s, referred jokingly to the image of purchasing people as meticulous, honest but risk-adverse; while marketing people were seen as foolhardy, reckless and living life on the edge. The stereotypical view was that “purchasing is about buying, marketing is about selling; purchasing is about managing supply, marketing is about creating demand; purchasing is about minimising cost, marketing is about maximising value. But none of these actually feel right,” she said. King admitted that “marketing cannot maximise value without keeping an eye on cost”. At the same time, purchasing needed marketing to inform them about consumer demand to assess the end value of a product. And she rejected one delegate’s claim that purchasing increasingly considers long-term corporate objectives, while marketing is more interested in the short-term maximisation of sales. Individual adverts may be short term, she said, but “building the total brand is about longevity”. Cammish recalled how one chief executive fought to prevent ambitious young marketing managers from destroying 50 years of investment in brand image. He suggested that the choice of supplier and the creation of long-term relationships was a stronger contributor to company profits. Nonetheless, he concluded that marketing and procurement were complimentary. “The two together is one plus one equals three,” he said. “The two working antagonistically could destroy an enormous amount of value in the business.” Soundbites “The Gershon review is the third way between the anarchy of devolution and the tyranny of centralisation.” Alan Milburn MP, in his keynote address describing the reasoning behind the Office of Government Commerce “Supermarkets don’t always get it right. If you have five items in a basket, you go straight through. But if you have £120-worth of goods in a trolley, you have to queue.” Paul Edwards, chief executive, the Henley Centre “I feel a lot more powerful today with 130 people than I did on 31 March with 4,500.” Peter Bareau, chief executive of National Savings, which outsourced 97 per cent of its staff to Siemens Business Services “I’m very proud to make the world a more interesting place.” Ros King, managing partner of advertising agency J Walter Thompson, in response toa delegate who accused marketing of being frivolous