February 4, 2010 by Torbjörn Thorsen, IBX Group AB
Over at Coupa Cabana, guest blogger of the week Dustin Mattison does a great job of outlining some of the challenges and opportunities that procurement functions are facing in 2010. Second on his list is outsourcing.
2. THE PROS AND CONS OF OUTSOURCING
Many of the themes that floated to the surface overlapped to one degree or another. The recession, for example, forced us to re-examine the practice of outsourcing. What made sound financial sense in the previous decade doesn’t necessarily make sense today. Now, more than ever, we need improved supply chain visibility, and while some see outsourcing as a practice that tends to block the view, many others see it as an opportunity to improve collaboration and communication with their partners. The purpose of outsourcing is to hire experts in areas outside our key competencies. The challenge, of course, lies in making those connections — something we are already seeing as a hot topic for discussion 2010.
Though I do agree that the pros and cons of outsourcing is one of the key trends in purchasing at the moment, I thing that many companies need to re-assess why they are looking into the issue. Dustin and many of others are clear with their view on why and when to outsource; “to hire experts in areas outside of our key competencies”. In some cases this may be true, but to me that sounds more like typical consulting/services needs. Outsourcing on the contrary should – in my mind – be used to increase focus on core issues.
For instance, many companies can still count quite a few resources that know IM&S procurement inside and out. Using the logic Dustin describes above, this would then be out of scope for outsourcing as there are in-house experts. If I was in charge of the purchasing function, I would do the opposite.
Outsource IM&S procurement and re-focus the IM&S experts to DM and vital services procurement. Expert staff in procurement are not only experts due to their deep category knowledge, they are also skilled in purchasing process, strategy, relationship management, implementation – skills that would generate far more value if applied on more core commodities.
Given the fact that procurement outsourcing will be a focal point of 2010 – I would argue that the functions response should be to focus on the core commodities and look into how one could benefit from outsourcing the commodities and processes that are non-core. Boost your core with outside experts and consultants, but don’t confuse this with outsourcing.
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February 2, 2010 by Torbjörn Thorsen, IBX Group AB
Apart from all the other spend management related issues going on in Stockholm at the moment – this week is also one of Stockholm’s fashion weeks. At first sight, high fashion might be as far away from classic corporate purchasing as is possible – low runs, design focused, pricey, you name it – yet last year big fashion talk of the town was all about supply chain management without lost focus on the design and fashion end of the spectrum.
This fall saw the dawning of a new swedish designer jeans brand (adding further competition to a marked blurred by hipster faves such as Nudie, Acne, Cheap Monday, Filippa K and Whyred) – Noko Jeans.
When other designers start with pen and paper and demin – Noko had another thing in mind. A North Korean supply chain.
It took the guys behind Noko 2,5 years to get 1100 jeans produced. So much for a lean supply chain.
The Noko-website does a great job when discussing the issues and ethical questions that arise when dealing with suppliers in countries that are »off the map« for most purchasing organizations. Highly recommended and in my mind there is a great management type book buried in this story.
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February 1, 2010 by Torbjörn Thorsen, IBX Group AB
The trials and tribulations of Saab continues – after months of rumors and cliffhangers, GM finally decided to sell Saab to Spyker last week. And although the deal is far from finalized, things seem to be falling into place – a great relief to the Saab/GM supply base.
So with Saab production finally at go-ahead all things should be rosy, right?
Well, not quite. For nearly a month GM has been steadfast in their decision to liquidate Saab. Vital to the liquidation process has been the cancellation of ordered parts, a decision that now – for the new owners – has brought on a new headache: supply shortage.
Saab used their in-stock parts to build 100 cars last friday – but today the plant in Trollhättan is at a stand-still. There are no parts to build cars from.
Getting the supply chain back on track will take up to two weeks according to spokes persons at Saab.
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January 26, 2010 by Torbjörn Thorsen, IBX Group AB
I’ve spent the best part of the last month and a half contemplating my life – taking care of my kids, listening to music, getting involved in two book projects – generally lazing about being utterly unproductive. And by accident, ignoring this blog and my publishing responsibilities.
So has this spend management hiatus been beneficial. Well to be honest, just like in the case of any interuption – two months down the line I’m back where I left off. A little behind my peers, playing catch up.
Recently The Economist (January 9th-15th issue) hid a rather interesting story on how Boing is planning to avoid these types of issues in the future. As many of you surely know Boing has had it’s share of supply chain issues that has delayed the 787 Dreamliner on numerous occations – the most famed being the Machinist union 57-day walk-out that cost Boing more than $2 billion dollars plus loss of business as some potential clients switched their orders to Europe’s Airbus.
So in late 2009, Boing responded by announcing that it will replicate the supply chain for all Dreamliner parts made in Washington so that their new South Carolina plant can operate independently. To avoid further interuptions in their much delayed production schedule Boing has sourced a second supplier for every part.
Now this tactic may be as far away a step from single sourcing and “winner takes all” negotiation tactics as one can ever imagine, but in the drag race for the sky between Boing and Airbus it actually makes sense.
Now if only I had though of this two months ago – getting a replacement me to handle my job as I went wandering. Then maybe I would be getting up to speed faster than I am at the moment.
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December 2, 2009 by Torbjörn Thorsen, IBX Group AB
I know that I’ve mentioned the brilliance of Hans Rosling before but he recently stepped into the limelight again as he made Foreign Policy Magazines 100 Top Global Thinkers list. I hope all of you have seen what professor Rosling does with data – it’s mindboggling to say the least, yet what struck me this morning was his clear take on the world of today. In an interview in Svenska Dagbladet he commented that the world is no longer divided into a developed and an under-developed world, there are numerous levels in between and we need to understand this.
“We need to have a fact based world view and [unfortunately] we do not.”
From a supply management perspective this cannot be emphasized enough. In our state of volatile new normal bringing the facts into the open and making sense of them is of utter importance. Supplier information may be in vogue, but without strategies and ideas of how to analyze and visualize the indicators that may be found in this well of data chances are that one may be steering as blindly as before.
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November 24, 2009 by Torbjörn Thorsen, IBX Group AB
Over at Procurement Leaders, the staff reports that in the UK the “flood of jobless procurement pros creates ‘challenging’ environment” for those looking to staff up their procurement functions. Not only is there a bigger talent pool that needs to be navigated, but in many cases there are great retention risks involved as many companies hire over-qualified staff to fill the vacancies.
Last year I edited a book called “Purchasing Tranformation” and in it Björn Stenecker provided a solid skill mapping model which he had used to great effect when dealing with hiring, rentention, development and coaching issues of purchasing functions.
Simply put the model spreads 20 or so criteria across four dimensions which are graded on a scale of 1-5 for both the individual hire/employee and the role.
Education
General competence
- IS/IT
- IS/IT – ERP knowledge
- Project management
- Budget
- Business development
- Strategy development
Specific competence
- Purchasing skills
- Negotiations
- Contracting
- Supplier development
- Category expertise
- Logistics
Personal skills
- Leadership
- Analysis
- Communication
- Cooperation
- Stress handling
- Initiative
- Accuracy
- Flexibility
This model can be used as self assessment in the recruiting process for new hires to quickly see which candidates fit the proposed role. It is also a brilliant tool for seeing in which direction one could develop over-qualified staff in order to retain the competence in the company.
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November 6, 2009 by Torbjörn Thorsen, IBX Group AB
Jason Busch recently posted a note worthy piece on collaboration (Supplier Collaboration – How Sweet It Is) where he recounted how Hershey Foods and Kmart had developed and executed very successful programs for the Kmart chain.
I was further reminded on how these types of relationships work at lunch yesterday when I ran into an old friend and he mentioned that he was waiting for the response from one of his customers to whom he had delivered material earlier that week. My friend is a songwriter and he’s is contracted as a supplier to one of the major record labels. It’s a buyer/supplier relationship built purely on trust (and past performance).
Now I understand that this might seem a bit farfetched for some, but remember that the recording industry is an 18 billion dollar industry that has experienced a nearly 15% drop in sales annually over the past few years. It’s a business that more and more has become dependent on external suppliers to deliver songs, the changes to the industry that were caused by The Beatles in the sixties have become obsolete and they are more and more resembling the industry demography of the fifties with freelancing songwriters providing songs to labels. But in order for this to work:
- The buyer needs to trust the songwriter to be able to deliver what they (and their artists) need in order to become more successful.
- The suppliers need to build a relationship that enabled them to deeply understand what both the record label and the artist was looking for. And unless this is delivered, there is no money coming in. So the depth of the relationship and common understanding is essential.
Now this type of supplier relationship might only be fruitful for a few select categories, but I believe that if we are to be able to exploit the potential for innovation in the supply chain – relationships like this will surely be integral in attaining that goal.
As for my friend in the example mentioned above, I don’t know the outcome yet, but if my friend has understood exactly what the stakeholders were looking for his material will end up on the next Kylie Minogue album.
Posted in Business, Supplier Management, Supplier Performance | Leave a Comment »
November 3, 2009 by Torbjörn Thorsen, IBX Group AB
Despite some of the headlines (true or not) regarding the practices of IBM’s executive management, there are still some interestion material emerging from the big blue.
In IBM Global Business Service’s recent ”Sourcing in a demanding economic environment” white paper the men in blue offer up a wide range of tactics and ideas for how purchasing departments can excel in even a harsh business climate. Though not much is new, and I personally would have emphasized exactly which skills are core when interacting with other parts of the business and taking on a leadership role in the value creation process, the authors have managed to collect a very comprehensive set of questions that purchasing managers should ask themselves when considering how to go forward with key purchasing challenges.
- Supply base: Who are the right suppliers?
- Commodities: What are the strengths and weaknesses in commodity coverage across growth countries?
- TCO: How can I help ensure sustainable TCO savings? How do I build a reliable business case and estimate risks?
- Quality and skills: How can I maintain quality levels? How do I attract and retain top-quality staff?
- Supply chain integration: How can I most effectively manage an extended supply chain? How can I help ensure competitive lead times and flexibility?
- Contracts and legal: What contractual and licensing issues should I be aware of? What are the import and export regulation requirements?
- Taxation: What are the benefits or pitfalls regarding local taxation? Should I buy in local or foreign currency?
- Language and local culture: How can I manage the local language and cultural challenges? How can I protect mu intellectual property and prevent fraud?
Though most of these questions may seem basic to more advanced purchasing professionals, I’d suggest you go through them in your next purchasing council (or board). Chance are that you will unveil unknown weaknesses in your supply chain that can be bettered.
Posted in Change Management, Governance, Organization, Procurement, Sourcing, Supplier Management, Supply Chain Management | Leave a Comment »
October 27, 2009 by Torbjörn Thorsen, IBX Group AB
Now anyone with even the smallest grasp of procurement knows that in most cases standardization is good, but one has to wonder how far this decree should be taken.
This coming Monday, McDonalds will close their three Icelandic restaurants turning Iceland into one of few McDonalds free zones in Europe (the others being Albania and Bosnia and Herzegovina). In a Reuters interview, Jon Ogmundsson, managing director of Lyst, holder of the McDonald’s franchise in Iceland, blame rising cost of supplies as the main reason for the closure. With McDonalds famed for their comparability across the globe – taste wise, if not cost wise – changing the ingredients seemed out of the question.
“For a kilo of onion, imported from Germany, I’m paying the equivalent of a bottle of good whiskey.” Now, the
Icelandic economy is still in a freefall so there are of course other aspects that play into this equation as well, but one might wonder what could have happened if the purchasing professionals at McDonalds in Iceland had stayed a little more on their toes when it came to sourcing their ingredients for 2009.
Posted in Best Cost Country Sourcing, Business, Low Cost Country Sourcing, Marketing | Leave a Comment »
October 26, 2009 by Torbjörn Thorsen, IBX Group AB
I recently came face to face with one of the major hurdles (and misunderstandings) of purchasing marketing spend; namely the definition of quality fulfillment.
Now, in most cases, marketers want superior quality – it is one of the real drivers of marketing effect – but when purchasing professionals attempt to support marketing in procuring say photography services the definition of quality fulfillment quickly becomes somewhat blurred.
- The professional purchaser wants to buy images.
- The marketer wants to buy superior images.
The problem is that who is to judge when an image goes from useful (it clearly displays whatever object was photographed) to superior (it displays not only the object, but also projects emotions or feelings).
The images that I purchased definitely passed any criteria set by the purchasing department (great focus, clearly displaying the object) yet I was devastated since the images were unusable due to the lack of correctly projected emotions. So what did I do?
Did I blame purchasing for supplying an inferior photographer? Well, no, on paper he was perfectly capable of doing the job (and he did, only I wasn’t satisfied with the superiority of his work) so I bit the sour apple. But next time, I’m going provide a longer list of suitable suppliers – suppliers that I as stakeholder know can bring me the superior quality I demand – and then purchasing will get to support me in the negotiations.
Posted in Business, Change Management, Procurement | Leave a Comment »
