Archive for May, 2008

« Older Entries

The Supply Chain of Rock

May 30, 2008

With the grandfathers of shock rock in town, one starts to realize just how far supply chain management has crossed into the world of music.

The official Kiss merchandise count today is 441 items (all available at the Kiss Alive 35 online store ). Not bad for a bunch of rockers out of New York City. Today’s daily paper quotes Gene Simmons saying that he’s prouder of the development of the Kiss doll coffin than he is of his songwriting. Though I think he should re-evaluate his back catalog, cutting off their supply chain would probably hurt him more than turning off the power supply that enables the band to rock.

Posted in Personal, Supply Chain Management | Leave a Comment »

S.M.A.R.T – a good start when starting your strategic sourcing project

May 28, 2008

In a recent internal discussion with one of my senior colleagues, Per Svanberg, we had a discussion of what kind of objectives you may set before you start a project. The content of this discussion could be summarized as follows:

“Running a project without clear objectives is like driving your car to a meeting blindfold. You might get there by luck but it will be painful and there will be casualties.” Richard Jones, Project Management Survival.

Running a Sourcing project is no different from any other project in this respect. You need clear and complete objectives to do it successfully. There area a number of ways of developing project objectives to try to ensure they are as complete as necessary.

One common way of doing it is to do as Rudyard Kipling once wrote; “I keep six honest serving men; they taught me all I knew. Their names are “What”, “Why”, “When”, “How”, “Where” and “Who”. Those six words are a complete way to consider an objectives statement. Apply the following questions to your objectives and you will have come a long way if you can answer them all.

  • Why are we doing this project?
  • What will we do during the project?
  • How will we do it?
  • Who will do it?
  • Where should we do it?
  • When will it be done?

In order to make it even cleverer, you may add the “S.M.A.R.T-test” to ensure your objectives are:

  • Specific
  • Measurable
  • Accountable/Attainable/Achievable
  • Realistic and
  • Timed

Simply recognizing S.M.A.R.T and you are most likely off to a great start with your Sourcing project!

Posted in Sourcing, Supply Chain Management | Leave a Comment »

Maverick buying SaaS Solutions

May 27, 2008

As I wrote in my last blog entry, SaaS (Software as a Service) is gaining more ground in coporate IT strategies but taking a closer look sometimes the CIO is completely left out in the decision making process for SaaS. The nature of SaaS solutions is that they can be implemented and used without even involving the IT department and this is what happens in a lot of companies.

The driving force to implement a SaaS systems is in many cases the operating department (e.g. the purchasing, sales or marketing department). If an operating department needs to move fast to solve an issues or to gain a competitive advantage the barrier for maverick buying a SaaS solution is very low. More and more CIOs find out about these systems long after they have been implemented and used. Of course SaaS solutions are also easy to get rid of from a technical standpoint but do you really want to take the hassle to reverse such decisions?

In my view – if IT wants to maintain its leading position, they need to proactively incorporate SaaS in their strategies and offer expert support in the SaaS selection process e.g. when it comes to the negotiation of service level agreements and the concept of a future integration concept for SaaS solutions.

Posted in Software as a Service, Technology | Leave a Comment »

Spending you money right

May 23, 2008

Jason Busch at spend matters blog argued that a pair of $500 business shoes from the American manufacturer Alden probably is a bargain. The style of the typical business shoe from a manufacturer like Alden is more or less the same year over year. Busch points out that the classic model Cordovans therefore are guaranteed not to go out of style. On the other hand, they will not be in style either. If you can live with this, I agree that a pair of more or less handcrafted expensive shoes can be a very good purchase. The cost per day used is probably the same as a pair of cheaper shoes but during the total life cycle, you will wear shoes with better fitting, made by finer materials and you will resist the buy and through away culture.

My reflection is that most people are pretty careless on how they spend their hard earned money. People normally do not perform a spend analysis to understand where they should focus their sourcing effort. They seldom aggregate volumes by asking relatives, friends and neighbours to join a sourcing process. People very seldom try to negotiate in a shop. But even worse, people tend to be impulsive instead of defining their real need, finding the right supplier and considering the Total Cost of Ownership, e.g. for shoes. I guess this is why the low price retailers are so successful.

By the way, I prefer English shoes.

Posted in Personal, Sourcing | 2 Comments »

Some implications of using Kraljic´s Matrix from a category perspective

May 23, 2008

When working with clients the last couple of years I have noticed a clear trend in the interest and usage of Kraljic’s Matrix as a tool to get a common view and understanding of commodities also on category level and not only on company level. When Peter Kraljic wrote his article “Purchasing Must Become Supply Management” back in 1983 I don’t think he intended the model to be used like that. If that was the intention he actually missed out on a big portion of information and recommendations.

What I am referring to is the fact that nowhere in his article you can find guidelines on exactly where you should plot in your sub categories in the Matrix when not fully aware of the big picture. It is all up to your subjective judgment. When looking at the Matrix from a category perspective, especially if the purchaser/category responsible is doing the analysis, there is an obvious risk for over-estimating the spend impact (y-axis) and also the complexity of the supply market (x-axis). The end result will be an overpopulation of “strategic” subcategories and you will miss out on a lot of easy-to-source subcategories where you simply put “apply the wrong medicine” to approach your category.

The result of overestimating “importance of purchasing” and the “complexity of supply market” leading to the wrong conclusions on how to act.

One quick fix for this problem is that purchasing mgmt decide and communicate general rules and guidelines on how to use the matrix. To once and for all define what they mean with small, big, large spend impact, number of suppliers, entry barriers etc. Some areas will still be judged subjectively but at least you have a framework for reference and that will prevent the tendency to move into the wrong part of the matrix with your sub categories leading to the wrong kind of decisions.

Posted in Best Cost Country Sourcing, Sourcing, Supply Chain Management | Leave a Comment »

Supplier Search: An Often Neglected Step in Strategic Sourcing

May 20, 2008

Securing a competitive environment is a very important step in strategic sourcing, especially for areas which are suitable for a competitive bidding approach. In essence, even the best strategic sourcing process will fail if the fundamentals of a competitive bidding approach is not properly considered; namely to include many suppliers to ensure competition to the process.

As simple as that may sound, often the results are unimpressive. The tendency to stick with existing and known suppliers only is more of a rule than an exception according to my experience. Starting the process in this manner will deteriorate the competitive bidding strategy and severely affect the anticipated outcome.

The reason of this is to a great extent the lack of time or resources. Still, the preparation phase is not the area in which to take short cuts. In addition, many sourcing professionals ask for a supplier database where they easily can find suppliers, ratings and financial information. This is a utopia; not reality and there is no silver bullet to achieve a good result in the area to find suppliers.

On the contrary; the trick is to use many different resources and techniques to look for suppliers and combine them during the supplier search phase. In essence, you need to know how work the web and look for information in many different resources that may contain this type of information.

Generally, there are three types of resources available in the market but all have pro’s and con’s as illustrated below:

1. The web (Internet – Google, Yahoo, MSN, etc.)

+ Info is up to date
+ Lots of useful info can be found per supplier (news, reports, ratings, etc.)

- No uniform structure
- Hard to find new suppliers
- Too much info
- Some parts are not relevant or trustworthy

2. Open supplier directories (ThomasNet, Alibaba, EuroPages, etc.)

+ Easy and fast to find new suppliers
+ Free of charge

- No or limited 3rd party QA
- No clear market leader

3. Closed Supplier databases (e.g. Dun & Bradstreet, Kompass etc.)

+ Financial ratings and advanced search capabilities
+ Higher data quality than in open directories

- Costly
- No clear market leader

As for the Open and Closed supplier directories you may also discover that they have different strengths in different geographies. If it is a true Global Sourcing effort you intend to run, you need to combine all these resources to retrieve a satisfying result.

Good luck in your next supplier search effort!

Tags:,
Posted in Best Cost Country Sourcing, Sourcing, Supply Chain Management | Leave a Comment »

Why Software-as-a-Service is gaining ground

May 19, 2008

Software as a Service or SaaS (how we geeks call it) is gaining more and more ground in Corporate IT strategies and the current momentum in new web technologies also known as Web 2.0 will give it an even greater push. I have scanned the blogs of several opinion leaders in SaaS and I have summarized the key reasons for this development which I think can also be witnessed in current ePurchasing engagements.

Purchasing Managers need to go virtual

The growing virtualization is not only a technology trend, but it is also a business trend. eProcurement and eSourcing have brought Purchasing higher up on the corporate agenda but this has also caused higher expectations from the purchasing experts – more global projects, more travel and less time. Traditional systems sitting behind the firewall can no longer fulfill the needs of a modern purchasing manager. SaaS is perfectly suited for these new, virtual business requirements.

Traditional Software vendors jump on the band wagon

Just a couple of years ago SaaS was not really expected to make it into the strategies of the big traditional software vendors. The light weight business model of SaaS was regarded as a clear threat against the heavy weight behind-the-firewall strategies. Today even SAP and Oracle have entered the band wagon still struggling with the right price models but well aware of the growing importance of it.
SaaS is recession proof

Cost-control and flexibility is an important differentiating factor in times of an uncertain economic and political landscape. The adoption of SaaS on a pay-as-you-go basis will help successful companies to stay agile if investments need to be stretched. 
Corporate IT departments have accepted SaaS

6 years ago one of the biggest deal blockers for on-demand eSourcing deals where the internal IT departments. We had to argue against requirements like: “We have an Oracle strategy! Do you support DB2? SQL Server is not part of our IT strategy!” They where actually afraid of SaaS, thinking it could eliminate their jobs. This has clearly changed. SaaS has become a natural part of IT strategies.
Inspired by these blogs:

Tags:, ,
Posted in Software as a Service, Technology | Leave a Comment »

Sourcing from China drives their competitiveness

May 16, 2008

This morning I read a very interesting article by Johan Myrsten in the Swedish daily newspaper Svenska Dagbladet. He reported from a visit at one of IKEA’s 350 suppliers in China. According to the article 22 percent of all that IKEA is selling is being produced in China. The manufacturer that Myrsten had visited produced lamps and had grown from 60 to 2500 employees in ten years. Now the manufacturer was a typical mid-sized industrial company and with the employees living in the companies dormitories.

IKEA was very early in working closely with their supplier in long term relationships. This is also the case in China. They have set up an organization in China to support the suppliers with developing quality together with environmental and social aspects. Some 40 auditors work full time with IKEA’s Chinese suppliers. They used to focus on fire safety but now the focus is on working hours, work contracts, decreasing environmental pollution and securing that no child labor is being used.

The whole IKEA business concept is built on cost consciousness and of course also in purchasing. I guess this is one of the main reasons why they are sourcing a lot from Chinese suppliers. The suppliers are being pushed on both cost but also on parameters driven by IKEA’s Corporate Social Responsibility. However, in strive for cost it is also apparent how IKEA and other companies develops their suppliers to be more competitive in the global marketplace which will support in the fast development of the Chinese economy.

With a booming Chinese economy, salaries, rents and other costs will increase quickly. This will mean increased purchasing costs for companies sourcing goods from China. At some time there will be a trade-off on purchasing cost and the price for not taking responsibility for decreasing environmental impact due to transporting goods from countries far away from the market where the products are being sold. On the other hand, at that time maybe Africa will be the new low cost region to source from or the trend will be to only use local sourcing. I guess time will tell.

Posted in Business, Global trade, Sourcing, Supply Chain Management | Leave a Comment »

Turning Right is the Right Move for UPS

May 16, 2008

A recent article in Sweden’s leading daily; Dagens Nyheter (in Swedish); turned me onto this rather amusing (and ingenious I might add) supply chain story. As I dug into the story, I realized that it had been floating around for quite some time, but it’s still worth highlighting.

In 2007, UPS drivers saved 11 million liters (that’s about 3 million gallons for those of you who are uncomfortable with the metric system) of fuel by favoring right turns during their routes. Now, the turning right philosophy has been leading UPS for years, but recently they’ve developed new software to guide drivers; and recent reports for 2007 actually prove them right.

Commenting the amount of right turns a UPS driver makes in an ABC interview, industrial engineering manager Tasha Hovland at UPS is quoted saying: »A guesstimate, I would probably say 90 percent. I mean we really hate left turns at UPS«.

Now for all of the other drivers on the roads this might seem rather strange but planning the routes and avoiding left turns have cut route distance by 48 million kilometers (UPS estimates that this corresponds to 1000 less trucks necessary on the road); and at the same time idling has been minimized (especially in some US states where right turns on red are allowed). Accident risks are also lower, and carbon emissions are reduced.

High tech, low tech, call it what you will; it’s efficient and it’s saving fuel. For a company where fuel costs are 6 percent of their turnover, it proves that even the simplest innovations can become success factors. And to keep that chunk of cost down, this Monday UPS announced that they had placed the largest commercial order so far on hybrid electric vehicles.

Posted in News, Supply Chain Management | Leave a Comment »

Growth and recessions: From Keynes to Supply chain management

May 15, 2008

In times of a shaky global economy it could be good to have some perspectives on how the swings in the economy have developed over time. And is has become better!

Some of you probably remember the 1970s when we had the oil crisis and the drastic ups and downs in the world economy. We learned from Keynes that such swings are natural part of the economic life. But, as shown by the Economist, something has happened over the last 20 years. In most of the developed world fluctuations in economic growth have fallen by around half since the early 1980s. See graph below.

Volatility of GDP Growth

This in turn has cut off the worst periods of high unemployment and it has beefed up growth. In short, the economies are more stable nowadays which is a great thing.

So what is the reason for this change? The skeptical view is that improved stability has no cause: it is mostly down to luck. Economic shocks have by chance been less powerful. The economy is no better at taking a hit; it is just that since the two oil-supply shocks of the 1970s the punches have not been so hard.

But a study published last year (by Cecchetti, Flores-Lagunes & Krause) shows that economies have become far better at absorbing shocks. You may guess that better and more independent central banks are the key reason. Or expansion and innovation in credit markets. Yes, they have both contributed. But surprisingly the big contributor to reduced volatility comes from something as workaday as supply-chain management.

Thanks to improvements in technology, firms now have timelier and better information about buyers. Speedier market intelligence and production in smaller batches allows firms to match supply to changing conditions. This makes huge stocks unnecessary and minimizes the lurches in inventories that were once so destabilizing. More than half the improvement in the stability of economic growth is accounted for by diminished inventory cycles.

Posted in Global trade, Supply Chain Management | Leave a Comment »

« Older Entries