Archive for November, 2008

Give a Little Bit by Going Red

November 28, 2008

With the holiday season approaching I thought it would make sense to promote the spirit of giving, even though giving is not something that is usually associated with purchasing in a positive way.

I recently went to market to acquire a new shirt. A seemingly simple purchase – but also one where personal preference and quality (TCO) plays a big role (not unlike buying a pair of shoes). With a professional background in purchasing I consider myself a rational agent and based on previous experience I had the specifications ready:

  1. 100% Cotton, 2-ply
  2. Business-friendly color (no extremes)
  3. Figure sewn
  4. Straight collar (suits the four-in-hand knot best)
  5. French cuffs

Prior to the industrial revolution the choice of supplier would have been reasonably simple: The local tailor. In the 21st century however, its a completely different market. Of course there is still the possibility of approaching the (perhaps now only somewhat local) tailor – but with a self-imposed spending limit of around 50 euro that is not really an option.

Although not contractually bound I do have a list of preferred local suppliers so I started my search there. This was perhaps the first non-rational (albeit comfortable) choice as a more thorough analysis might have shown that e.g. quite a few excellent online suppliers exist.

Reasonably well-prepared though, I now faced the oldest enemy of purchasing: The sales person. Retail is usually a fixed-price environment but that advantage is quickly lost to accessory bundling, volume aggregation offerings and specification obfuscation or override (I was on my own – if you bring your special someone you can add buying authority bypass to the list).

The purchase itself went rather smooth actually – an inexperienced sales person was no match for my mitigation by budget strategy. However, while closing the deal I was caught off guard by what I now realize was the equivalent of the ‘candy near the counter’ technique – A stand with Red Cross logo-shaped cuff links and the slogan: Give a little bit. Non-rational choice #2 but it felt great.

I got my shirt and I gave a little bit to a good cause in the process. The cuff links are surprisingly good as well – It is not Sterling silver but they are functional and anything else really does not matter or change the statement wearing them makes. I think it is a well-executed campaign (a brooch alternative exist for women) – priced at around 5 euro it is also an offer that is very hard to refuse:

Red Cross - Give a Little Bit Campaign

Red Cross - Give a Little Bit Campaign

So, with the holiday season closing in – move focus from the current recession for a bit and consider replacing (or re-instating?) your holiday presents for employees, clients or key suppliers with charity donations. Most charities will help you make a statement as well, by providing gift cards that describe the charity or cause you can distribute in a holiday season equivalent of ‘Going Green’ – let us call it ‘‘Going Red’.

To help promote the Going Red initiative I will pick the 3 best comments with suggestions for similar initiatives or references to this post on other blogs and send the author a pair of above mentioned cuff links (or brooch, your choice). I will announce the winners here in an update within a few days.

Posted in Personal, Sourcing, Strategy | Leave a Comment »

Supply chain tangle will make it hard for GM to sell brands

November 27, 2008

As December 2nd draws near rumours about the GM survival plan are flourishing (in Swedish here: Svenska Dagbladet). In the Swedish media; urgent cries for a buy-back of Saab – mostly due to an overt belief in that Saab still is a Swedish car.

For anyone familiar with auto design and the automotive supply chain this can’t be further from the truth.

The fact is that GM will have a hard time dishing out any of their brands to opportunistic buyers. In trying to catch up with the Asian automakers; platform and parts consolidation has been accelerated to such a point that (from a Swedish perspective) the front-wheel drive is one of the few things that separate a Saab from say a Chevrolet or a Cadillac or an Opel.

Sad to say; the previously so heralded supply chain efficiencies might become a hurdle to high to master if GM should try to sell of some of it’s brands.

Posted in Business, Supply Chain Management | 2 Comments »

Are you accepting price increases by default

November 25, 2008

Having been offline for a few weeks due to private matters; the things that strike close to home appear more eye catching to me.

Lately Swedish media has been ripe with articles chronicling the shifting prices of raw materials and the little effect these shift have on price of consumer goods. In on of the articles (Svenska Dagbladet, in Swedish); the global price of wheat is compared over time with the price of flour in Stockholm area stores and the result is that consumers are unaffected; both from a savings perspective and from a buying pattern perspective. They still shop for flour; and pay through the nose for it, regardless of global wheat price fluctuations.

Now the price of flour is dependant on a number of things (albeit the core is the price of wheat); but the interesting thing about this story is that although the consumers are aware of the price fluctuations of the raw material, they silently accept that the profit margins end up in other peoples pockets.

Imagine this from a sourcing perspective; would a purchaser silently accept that negotiated prices are unaffected by the cost of raw materials.

The big dilemma is that in the end we’re all humans; distinguishing between our corporate and private selves is a hard thing to do. And as we privately start to accept increasing prices, how will this affect our ability to not do the same in our corporate roles?

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

Redefining Sustainability

November 21, 2008

We have recently blogged quite a bit on the topics of the current global recession. I want to share a comment today on sustainability, inspired in part by a recent white paper by Jason Busch on Redefining Sustainability that focuses on the theme that going green usually implies a lot of other benefits by reducing risk and ultimately leads to savings. Highly recommended read.

I agree on most parts of the white paper and the fact that the public relations part of going green should never be underestimated – I think you first and foremost need to look at sustainability as a goal you will achieve by having the right knowledge, processes and company culture/values in place. While company culture or values are not the easiest thing to change, focus should be on ‘doing your home work before going to class’.

Regardless of any green initiative, I am pretty confident that identical or bigger savings could have been realized if the home work had been done in the first case. Why do you need a global recession to reinvent your supply chain? In the words of former Bundeskanzler (’74-’82) Mr. Helmut Schmidt at the recent BME Special Conference on China:

Everybody is talking about China but nobody really knows it

This is spot on I think – reinventing the wheel over and over again or rushing in because China was the ‘next big thing’. It is of course wrong to promote the idea that all failed initiatives should be blamed on lack of home work done, but it should be common sense that it minimizes the risks considerably.

So, do the home work and you might just find sustainability was not all that hard to achieve.

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

Dollars & Sense

November 11, 2008

Bill Taylor, co-author of the much appraised book: Mavericks at Work, posted his take on the current financial crisis on his blog some weeks ago. He provides 4 pieces of advice which I think makes a lot of sense and are very much applicable for supply chain management due to the high number of external stakeholders:

1. Don’t just remake your balance sheet, reassert your mission statement. This crisis is as much about values, trust, and business integrity as it is about declining stock prices and limited credit. Be sure to remind your colleagues, your customers, and the world at large why what you do matters, why you started the company in the first place, and what kind of impact you’re trying to have on the world. Here’s a question I always ask CEOs to think about: “If your company went out of business tomorrow, who would miss you and why?” Well, since plenty of companies may go out of business, remind everyone around you why staying in business matters.

I just listed the first one here – have a look at the full post on Bill Taylors site.

Posted in Organization, Strategy, Supply Chain Management | Leave a Comment »

Expanding the Circle of Influence

November 10, 2008

Today I ran into this inspiring research paper from the Hacket Group describing their model of assessing the capabilities to deliver procurement value. The model is based on the assumption that procurement organizations will only manage to increase value by increasing their influence on different target groups.

  • Customers 
  • Suppliers
  • Shareholders, Board of Directors, Regulators
  • Employees
  • Requisitioners

The circle of influence describes 5 different levels of influence ranging from “Assurance of supply” (Level 1) to real “Value Management” (Level 5) for each target group.

 

So go ahead and do a quick benchmark for your organization. Knowing your level of influence will definitely help you to focus on the right next steps in your purchasing transformation program.

 

You can download the research paper with the circle of influence thru this link http://www.thehackettgroup.com/research/capabilitymodel/ (registration is required but really worth it).

 

Posted in Change Management | Leave a Comment »

Travel Cost Cutting Frenzy and Risk Management

November 6, 2008

As the effects of the economic downturn continues to send shock waves through the business world; big spenders (Spend Matters take a swipe at Google and other rising market giants here) are all starting to take a look at where their money is flowing.

Both ABC and NBC have recently had internal memos released to the public with cost cutting on the agenda. In an e-mail to the staff; NBC Universal’s chief executive Jeff Zucker is reported to have said that cost focus will be on cutting promotional expenses and discretionary spending such as travel. In a similar move, David Westin, president of ABC News, sent out an e-mail to inform his staff that ABC News (along with the rest of Disney’s Media Networks Group) will be implementing new guidelines aimed at reducing administrative costs; notably by scaling back on travel accommodations for executives as well as cancelling magazine and newspaper subscriptions and planned holiday parties.

Now this might seem like desperate moves; more like a show of action than any thing else; but one has to wonder how actions like these affect travel patterns and the airline industry. The airline industry is experiencing a crush of it’s own; over thirty airlines have collapsed so far this year (including the UK’s third-largest travel operator XL – who left 90 000 holidaymakers stranded abroad) and recently Willie Walsh, chief executive of British Airways, forecasted  that another thirty will be gone before years end.

So far many of the collapsed airlines are low cost carriers whose margins were based on high volume and chances are high that this pattern will continue so the question one has to ask is:

If business travels are asked to choose cheaper alternatives; will the new travel patterns come into effect soon enough or will the cheaper alternatives go out of business before this new wave of potential travellers even hit the market?

Recently I had a conversation with a colleague of mine (who is acting as travel manager at a mid size European manufacturer) regarding travel policies and the use of low cost carriers and from his daily perspective, low cost carriers was a non-issue for many companies – travel policies may state that lowest price is a priority, but this only seems to apply to the traditional airlines, low cost carriers are still seen as unworthy of business travel.

It remains to be seen if this is still the case as the screws are turned on both travel management and the airline industry. In any case; risk management needs to be prominently on the agenda when addressing the issue.

Posted in Business, Governance, Risk Management, Sourcing, Strategy | Leave a Comment »

Volkswagen to go Local in India

November 5, 2008

Continuing on our recent automotive industry theme; German auto giant Volkswagen announced earlier this week that they are going to source materials worth euro one billion for its global operations within the next two years.

The company has been building a plant in Pune, India, which should be operational by the end of 2009 and in a statement to the Press Trust of India Bernd Martin, Volkswagen AG global head of purchase said: “Our target is to give priority to local suppliers. We are planning to source at least 55% of the components for the plant and its production at the start of our operations and take the figure to 70% within two years of that”.

At the same time the German Association of the Automotive Industry (VDA) and Wolfsburg AG announced that it is planning an international auto supplier’s fair in India in early 2009. Wolfsburg AG has co-organized a similar event in Volksvagen’s native city of Wolfsburg together with Volkswagen for the past few years and not only does the auto industry look towards India as a potential market; the city of Wolfsburg has taken notice as well.

This is a clear indication of the fact that purchasing definitely is being used to breach entry into new markets.

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

Global 21 Meets Catch 22

November 4, 2008

The current financial crisis is all over the media right now and I think it raises an important question for most businesses (or I suppose it should): How do we go about our business in a downturn?

This is of course not the easiest question in the world – or is it? It is nothing new that the global economy follows certain cycles, in fact it is bound to happen according to modern theory in the field although the scale in this case was probably the main cause of concern to most.

However, there is no reason to believe this is anything but a short-term fluctuation and as such it is my personal opinion that it does not change a thing.

Granted, for a specific function like purchasing reality could be different in terms of imposed limits on spending or similar during a downturn but I sincerely hope not many businesses take to that approach. In general if you are already on track with e.g. your eProcurement initiative and on top of your KPIs there really is no need to act differently.

If anything purchasing should play a bigger role – we have previously covered some of the short-term opportunities that could be considered during a period like this but I think the focus should be on sustainability in the long run first and foremost. In the words of Warren Buffett:

Only when the tide goes out do you discover who’s been swimming naked.

Basically what he is saying is that the ones most affected in a downturn are those that did not do business as usual during an upturn. This is to some extent of course what makes the cycles appear in the first place and I think the key here, regardless of the current state of the global (or regional) economy – is to go about your business as usual and not let the short-term interfere with your long-term efforts.

The best case study on this I could find is actually 15 years old – Toyota’s Global 21 (G21) project probably better known as the Toyota Prius.

The Toyota Prius - A Step in The Right Direction

The Toyota Prius - A Step Ahead

The Toyota Prius, scheduled to be released in its 3rd generation in 2009, has consistently been the front runner for environmentally friendly cars ever since its debut in October 1997, while at the same time reaping in awards and praise from happy owners all over the world – a testament to the great efforts of the G21 development team.

The Toyota Way of doing business in general of course plays a major role in this success, but exceptional execution aside I think the real lesson to be learned here is that Toyota top management realised (during a period with great bottom-line results in the beginning of the 90s) that additional R&D efforts where needed to maintain sustainability in the long run, kicking off the G21 project with the highest level executive sponsorship in 1993.

Practicing the Toyota Management principle #1, the goal for this project was to develop an automotive manufacturing platform for the 21st century:

Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals

The targets for this project were e.g. a spacious cabin, a perceived overly aggressive goal of increasing mpg by some 50% (based on the notion that natural resource availability would be a serious issue some time in the future) – seemingly impossible targets which in turn forced the team to come up with innovative solutions like the hybrid engine.

Throughout the project executive sponsorship was dominant – a high-level committee of Toyota board members, or kenjinkai (“committee of wise men”) that met weekly – sending a very clear signal to the entire organization that this was a top priority project.

I think the Toyota Prius is a great example of how management stepped up and focused on long-term sustainability and made sure everyone was aware of it – even though the company was doing really great.

So, unless you are already naked I think the answer is to keep the long-term focus regardless of the tide and make sure your organization is aware of it.

Posted in Business, Organization, Strategy | Leave a Comment »

When Looking to Boost Your Purchasing Function – Make Sure Your Recruiter Knows What You Are Looking For

November 3, 2008

Over the past few years; report after report has stated that the role of the purchasing professional is changing. In February Aberdeen’s “CPO Rising: The CPO’s Agenda for 2008” found that the top three organizational challenges were:

  1. Need people with different job skills (74%)
  2. Need people with better education (53%)
  3. Need more people due to growth (46%)

While one can argue the validity of the last point in today’s economic climate; I would guess that the first two still hold true. Why is it then that the available jobs in the sector so rarely are advertised in a way that would attract applicants with “different job skills” and “better education”?

As I scanned the market for purchasing professionals in Sweden (using Fredrik Axelsson’s Purchasing News) I was alarmed to see that the most popular (and I mean popular, because I don’t believe it to be the most important credential for a purchaser of today) skill set was still “negotiation skills”.

The level of position being advertised didn’t affect the skill set needed to apply: be it CPO (“experienced negotiator”); strategic buyer (“experienced negotiator”); purchaser (“commercial negotiation skills”); or supply chain manager (“negotiation skills”).

Could it be that the responsible recruiters lack insight into the needs of the profession or are the reports (which often are written and researched in the USA) when confronted with factual recruiting data showing a difference of focus for American and European purchasers? I for one fear it’s the former, rather than the latter.

Posted in Organization | 2 Comments »

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