Archive for March, 2009
March 30, 2009
This weekend The Economist published a piece entitled Moving on up where they (partially at least) championed a return to Henry Fords vertically integrated supply chain model. Concluding, they offer, that though there are risks involved (in either approach), “Recalling the days when Henry Ford ruled, vertical integration—in adapted form at least—may emerge from disgrace as an innovative solution in an era when innovation is sorely required.”
One company that recently has started to revisit a more vertically integrated supply chain is Sandvik – one of Sweden’s leading high technology groups, represented in 130 countries world wide with market leadership in stainless and high-alloy steels and special metals. In mid-February Sandvik acquired Wolfram Bergbau- und Hütten-GmbH Nfg. KG (WBH), an Austrian producer and supplier of tungsten products. In the press release that announced the acquisition Anders Thelin, President of Sandvik Tooling is quoted saying:
“It [WBH] provides us with resources to manage the entire production process, from ore to finished cemented carbide powder. In this way we will be able to further strengthen our raw material supply and develop our business and customer offering.”
Given the volatility of the current commodity markets, carefully choosing your supply chain integration strategies is becoming more and more important.
Posted in Risk Management, Strategy, Supplier Management, Supply Chain Management | Leave a Comment »
March 27, 2009
Recently the once heralded business saviour global sourcing has started to receive a backlash. Purchasing.com has “The 9 hidden costs of global sourcing” as their March cover story and IBMs recent “The smarter supply chain of the future” report suggests that globalization has contributed more to revenue growth than to cost savings and efficiency. The report claims that many companies are encountering issues with global sourcing including:
- Unreliable delivery (65%)
- Longer lead times (61%)
- Poor quality (61%)
Add to this the increasing protectionist leanings of parts of Western Europe and the US one can sense a clear pattern of backshifting in the supply chain.
But is this backlash really deserved; and is it really closer always better.
I would say no, just as I felt that the unquestioned enthusiasm for global sourcing was that only way to go a few years ago. The flock mentality that led many companies into Asia and that is now leading them homewards reveals a lack of long term strategy and – in some cases – a lack of complete understanding of what the real business value of efficient purchasing is.
Purchasing.com blogger Michael Higgs nails this spot on (in one sentence, mind you) in one of his recent posts: “I would say the biggest fault I have found is that companies get overzealous and either don’t put anything outside the U.S. or they put everything.”
So don’t let the talk about the decline of global sourcing obscure the real target; market prices, expected quality and supply chain flexibility. If you get these parameters right, it doesn’t matter if your supplier is in Mexico, China, Portugal, Slovakia, Sweden or the US.
Posted in Best Cost Country Sourcing, Business | 1 Comment »
March 25, 2009
If it’s non-core; it can; and some claim should; be outsourced. But how does one really define non-core.
Recently several municipalities in Sweden have outsourced their ordering services for mobility service- and medical service transportations to call center service providers. In theory this seems just fine; municipalities should focus their activities on issues more core than just answering the phone and placing an order to a local transportation provider (such as the local cab company).
Unfortunately this non-core business is slightly more complex than it may at first appear to be:
- It’s highly dependent on local geographic knowledge, knowing where a certain street actually is located will certainly speed up the process and minimize errors
- It’s highly dependant on communication skills, both from a customer confidence angle, as well as the ability to correctly receive and process customer demands
- If something goes wrong, there needs to be a feedback possibility connecting the transportation provider with the customer to sort out any misunderstandings
Given these three preconditions, the sourcing decision to award the contract to the lowest bidder might make sense from an economic perspective, but who would have thought that call centers in Tartu, Estonia and Chisinau, Moldavia really had a fair chance to live up to any of the above mentioned preconditions. Especially given that the customers are most often elderly, disabled and in need of special services (hence the municipal involvement).
Our task is to plan cost-efficient trips of high safety and quality. We specialise in coordinating and planning trips, which allows us to handle the demands for quality and safety of our travellers.
About Samres from their corporate website
When the buyer Stockholm Läns Landsting (SLL) measured their customer satisfaction after a few months; the satisfaction level had dropped from 85 percent to 77 percent. The contract has not been renewed and SLL is currently looking for a new supplier.
What can a purchasing department learn from this: make sure to evaluate outsourcability from more than just the core/non-core aspect. Equally important is the strategic importance and the depth of stakeholder involvement as well as the impact on the customer.
Posted in Outsourcing, Risk Management | Leave a Comment »
March 23, 2009
Henry Ford has often been quoted as saying: “Any customer can have a car painted any color that he wants so long as it is black.”
Not only did this mean that the Henry Ford Motor Company got a better deal on paint due to the higher volume; but that’s only part of the story, many books on the subject also claim that black paint was chosen due to the fact that it was more durable than other coats of paint and that it dried faster, increasing the speed of assembly.
Now I’m not sure if there are any efficiency increases due to Arla Foods latest marketing campaign, but I do hope so – they’ve changed to color of the packaging for their biggest seller from green to black in order to promote Earth Hour, and adding some process efficiency would be a great addition to the cause.
Fact is that they claim that no extra costs have to be taken into account due to this rather drastic change.
- All colors for Arla milk use the same formula with different pigment added (in this case black)
- The black paint does not increase the environmental impact
- The black milk campaign will not mean more waste
- The volume is so large that neither Arla nor the suppliers will need to discard any packaging due to the campaign
Swede’s will definitely see the change as it impacts nearly 2 million 1 liter milk cartons.
Posted in Marketing, Spend management | Leave a Comment »
March 20, 2009
Last week Deutsche Post DHL revealed their strategy for 2015 and one of the key components in the strategy is a program called IndEx which aims to take at least 1 billion euros out of 7 billion euros in indirect costs at the corporate functions and the Corporate Divisions. According to DP-DHL more than 150 initiatives totalling more than 800 million euros have been identified to contribute to the overall goal; while some are strictly process centric, others are clearly tied to purchasing activities including the outsourcing of the European telecommunications services to Telefónica and reduction in travel and entertainment costs.
The IndEx program aim is to save 15 percent annually which by any means is an ambitious target; but fact is that many purchasing functions are pressured with delivering savings not far from this range.
During our recent Sourcing in a Downturn webinar we asked the participants about their savings targets; and how these had changed vs. the targets set for 2008.
- 48 percent had savings targets that exceeded 5 percent
- 36 percent had savings targets between 0 to 5 percent
- 13 percent had no change in 2009 vs. 2008
- 3 percent had decreased for 2009
With many companies downsizing across the board; these numbers are quite challenging. One way to actually come around with these numbers can be to see if there are internal resources that can support the purchasing function in delivering the savings. Recently we’ve seen organizations that have decreased their product introduction pace in order to free up resources that can be handed over to the sourcing department. These additional resources are then used to support in capture saving; approving new suppliers, changing and easing up specifications and focusing on new sourcing areas.
Posted in Sourcing, Strategy, Supply Chain Management | 1 Comment »
March 17, 2009
Last week I moderated a webinar on the subject “Sourcing in a Downturn”. The webinar was presented by Christer Hallqvist and Björn Stenecker, two of IBX senior managers, sharing more than 30 years of purchasing experience between them. In the 45 minute webinar (webinar and presentation can be downloaded here) Christer and Björn shared their insight into how one can make the most of sourcing in the current downturn utilizing a matrix framework to structure and identify categories with high savings potential.
In addition to the downturn matrix, one of the key take aways from the presentation was the fact that one can exploit the existence of the correlation of a suppliers bidding behavior considering the industry cost structure (in which the supplier is active).
By being able to predict supplier bidding behavior; buyers can amplify the effect by clearly communicating the award strategy. As Christer Hallqvist eloquently put it while presenting the different behaviors:
You may be surprised to learn how important this really is and it could either boost or weaken the dynamics significantly. As a general rule of thumb, the more clear communication strategy you impose e.g. Winner takes it all, Single Source etc. the higher is the likelihood for a Price reduction behavior. If expressed more softly such as “we will select the top 3 suppliers” or “price is only one consideration in our evaluation”, you will probably see a Price Compression behavior.
Posted in Sourcing, Supply Chain Management | Leave a Comment »
March 16, 2009
A few weeks ago BDO Seidman, LLP released the results of their annual BDO Seidman Technology Outlook Survey and some of the results were quite startling (worrying even, if you see it from a free trade vs. protectionism angle).
According to the survey; 62 percent of the responding US companies outsource services or manufacturing. A pretty typical number according to our experiences from the European perspective; the startling results come when the respondents were asked where they will go to find the market for this outsourcing:
- 22 percent answered the US
- 16 percent answered China
- 13 percent answered India
Douglas Sirotta, a Partner in BDO Seidman’s Technology Practice explained the numbers by saying the following:
“This year we are seeing three global factors that are causing U.S. technology companies to pull back from traditional outsourcing locations, led by the recent boom and bust of the worldwide economy. Satyam’s fraud case and the terrorist attacks in Mumbai are causing a lot of companies to reconsider operating in India. And supply chain and shipping cost issues in China are negatively impacting the attractiveness of outsourcing technology operations to the Far East.”
But that’s not the only reasons for the backshoring; Business Week reported that the Indian government is worried that protectionism and the regulations that rule the US stimulus package (as well as tax-reforms) are also part of the equation.
Whilst I can agree with the worries expressed by the respondents of the BDO survey; supply chain risk must be part of the equation when one seeks to outsource even non-core categories; the worries of the Indian government is of even greater importance. Protectionism should not have to be a factor that has to be considered when managing a global supply chain.
Posted in Best Cost Country Sourcing, Business, Global trade, News, Outsourcing, Strategy | Leave a Comment »
March 11, 2009
D&M All Business recently ran a piece on what business leaders can learn from President Obama’s practices. Obama’s management style continues to awe many observers; but one of the most startling acknowledgements is his consistency. No-drama Obama had a plan for leadership which he has stuck to since setting his eyes on the presidency.
Among the four issues addressed by All Business we’re gonna pass on “He is unflappable” and “There Is No Room For Drama”; whilst this advice is good for management in general, the remaining two are more in line with the challenges facing global purchasing today.
He Listens To Others
Knowing your stakeholder requirements is key to successful IM&S purchasing; and this is especially important when it comes to service procurement. Know when to listen and when to speak up will decide how you are perceived; it will also ensure that you learn the foot work of your internal customers.
He Motivates People To Work Together
Cross functional category teams is another key methodology that separates procurement leaders from the laggards. Being able to lead and motivate across borders and cultures will further strengthen the ability for these cross functional teams to succeed with their targets
Posted in Business, Organization | Leave a Comment »
March 10, 2009
I must say I found this Industry Week spotlight piece on managing risk in multi-enterprise supply chains quite intriguing. Arguing that old ways of managing risks are outdated in a world of horizontilized companies; the author proposes a shift to community based risk management in order to manage the challenges of outsourced manufacturing.
As a step on the way to a more community focused mindset; five key issues are addressed:
- Community KPIs
- Community forecasts
- Community assets
- Community data
- Community technology
To conclude; the author offers the following piece of advice:
…with risk comes reward and a well-managed community supply chain will deliver the advantages product companies need to not only make it through this volatile market, but also set themselves up for long-term financial success.
Posted in Business, Risk Management | 1 Comment »
March 9, 2009
When it comes to sustainability issues related to supply chain practices; two areas are often brought to the forefront as areas of opportunities: packaging and logistics. As for logistics, a recent report (Are Trucks Taking Their Toll) by Dutch environmental research consultancy CE Delft suggests that there is plenty of room for improvement in this area.
According to CE Delft; overall utilisation of the tonne-km capacity of an average truck (Heavy Goods Vehicle) is just about 45%, and most data show decreasing utilization numbers. In explaining this trend; CE Delft offers a few alternative scenarios:
- Buyers with a high focus on just-in-time delivery
- Logistics providers with focus on efficient time management rather than efficient transport
Seen from the buyer side, this thesis is confirmed by the recent logistics survey (in Swedish) conducted by the Swedish logistics operator Posten. More than 50 percent of the respondents Posten surveyed would not consider environmentally friendlier transports if these transports would cause delays or increase the time of delivery.
As with many questions relating to sustainability; responsibility is being shunned by the users, pushing the responsibility onto governments. The problem in Europe is that most logistics cross multiple borders and pushing the responsibility onto the EU and/or national governments is a sure fire way of burying an issue instead of dealing with the actual problem – which in this case if truck utilization. Efficient logistics is still a far way away; Swedish Minster of Transport Åsa Tortsensson hits the nail when she describes the state of European logistics in Svenska Dagbladet (in Swedish):
“There is not an efficient road or rail network through Europe; there are 27 national solutions.”
Posted in Logistics | 2 Comments »
